Private Equity Interviews tomorrow

I got a last minute private equity interview and I was wondering what kind of questions typically come up in these private equity interviews. Are they more technical or fit related?

Any insight would be appreciated.

 

use the search function -- there's been a lot written about this in the past. whether your interview is "last minute" or you had two weeks to prepare, it would behoove you to look at the archives of this forum. if you really cared about this interview, you would have done all this preparation already.

to answer your question bluntly, you can expect both technical and fit questions.

​* http://www.linkedin.com/in/numicareerconsulting
 

Speaking from a friends experience who interviewed at a 5bn aim firm. 1. Initial rounds focus on behavioral 2. Technical questions were limited to basic banking questions (although if you have anything finance on resume, I'd say LBO walk thru or case study in an discussion sense also is reasonable) 3. One interview was just on brain teasers. 4. Afterwards,had to complete an online test

 

I interviewed for a long-term internship with a large European PE fund, and process was pretty standard:

  1. Behavioural, some technical questions (FCFE vs FCFF, why we care about FCFE, walk me through LBO, typical IRR one sees in PE), questions about potential investment opportunities in industries. Also some accounting questions. (Accounting knowledge is very important in PE)
  2. Modelling test (LBO)

Macabacus is definitely a fantastic source, and if you can understand the LBO on Macabus, then you should be set for any technical questions. Also make sure you know how to do a paper LBO

 

Expect run of the mill fit / behavior stuff.... Tell me about yourself, what do u do at X company, how did u end up at x school, y company

Typical technicals, maybe some irr calcs, technicals and industry stuff related to ur experience and resume, deal specific stuff

More qualitative stuff, was x deal u worked on a good investment, why or why not... How would u think about x company in y industry, how much leverage would you put on it, what would drive returns, etc...

I feel one of the main things they'd want to know is why you want to be in mn. This is one of the biggest concerns for them most likely. Have a very good answer, if you're not from the area and don't have an answer make something up.

 

Sorry to get off your topic MandA, but would you mind posting a couple of questions from your RE PE interview? I have one next week and I'm not quite sure what to expect (no formal RE experience). Any help would be greatly appreciated.

 

some may conduct many rounds of interviews, ask you to meet all partners (even if that numbers in the double digits), give you modeling tasks in real time, ask technical questions

others will be totally soft, almost philosophical. ask you why you wanna be an investor, what do you think psychological diff between banking and PE is, throw you a business and ask you for an opinion on it, ask you what business/industry/recent deals you like and why etc.

at some firms you have earlier rounds with lower level folks, and these tend to be more technical. Partner level interview I had were non-technical

bottom line, it varies, and depends mostly on the partners whim.

you need to prepare by knowing your deals and resume, talk to as many PE folks as possible beforehand, know what is going on in the market, etc. And cram a little on the technical stuff if it's not part of your daily work and you feel uncertain about it.

 
Best Response

I think that's a very good question as this is probably the most important idea to get across when interviewing with funds.

In essence, you can divide the thought process into three steps IMO (for interviewing purposes):

  1. Who's gonna buy this from us in 5-7 years?
  2. Is the company operating in an industry/market that will grow in the next 10 years or (sometimes) even exist in 10 years?
  3. Is the business financially sound enough to support a buy-out?

This should give you a pretty good big picture idea about whether this company would make for a good investment (given the info you get/got).

Sometimes interviewers also want you to solve this question by doing an LBO on paper, and seeing if you can get a decent rate of return using the numbers they give you.

I have not heard of any info memos floating around.

I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing. See my Blog & AMA
 

I found Porters 5 forces to be an excellent paradigm to use in these scenario. Other things to keep in mind when answering these questions:

  1. Think strategically about the business - Porter's 5 forces is a good start
  2. Focus on the risk vs. reward tradeoff (this is easily the most important part of this question); you look at a deal that returns 16%, is it acceptable, no. You dial up the leverage, returns are 20%, how about now? Key concept to grasp is that nothing has fundamentally changed about the business, its still the same exact entity as before, but with more financial leverage (i.e., risk)... so that one change doesn't necessarily make it a good investment just because it hits your LP return hurdle
  3. Always be a contrarian/skeptic; give people (especially management) the detriment of the doubt
  4. Focus on what can go wrong - "the things that would keep me up at night are...."
  5. If you don't have a differentiated view on the asset, its probably not a good investment for you; winning an auction process is (often but not always) a misnomer - "what's my angle?"
  6. Think tactically about the acquisition - who's the seller, whats the dynamic
  7. Almost any investment will be compelling at the right price

Last but not least, interviewers tend to be: (a) too optimistic, because the deal was socialized to them in a banking environment where the overly optimistic highlights are lauded and risks are swept under the rug; so be critical and contrarian; (b) too abstract/theoretical; at the end of the day you're giving someone a bunch of money so you can own their business, don't forget that, take your thinking and apply it to the real world.

 

The main differences will lie in trying to see if you can think like an investor as opposed to just regurgitating answers you memorized from a technical guide. In banking, most interviewers will know that you don't have a ton of experience but if you have taken time to prep and understand the basics it signals to them that you are interested enough to do your homework and as long as you have a good attitude they can work with that to fill in gaps. With PE, they want people who know the technicals and how to apply them. You still don't need to know every single thing, but the bar is a bit higher. They might ask you questions that seem a bit different from what you would get in a banking interview. They are more focused on the "why?" than the "how?" You might mention deal metrics and they might respond wondering why the margins are the way they are, what is driving the trend? Are margins strengthening because revenue growth is outpacing COGS or is revenue relatively flat but they are improving margins through cost reduction? How easily can the company service debt, etc.

You may not get all of these types of questions in an introductory interview, especially if you haven't done 2 years in banking, but these are some of the subtleties in how PE interviews differ from banking interviews.

"I'm sorry baby, you were the Sun and Moon to me. I'll never get over you.... You'll never get over me..."
 

first off, thanks for the reply, a lot of good input in there. since I have no banking experience besides my internship, how in depth should I study? I have until this upcoming tuesday, so that leaves me quite a window to knock some books out/study up on technicals to hopefully get second rounded for this firm. any recommendations on techniques to study or books to read? thanks in advance.

time is the most precious commodity.
 

I would focus on understanding the mechanics of an LBO, what characteristics make a company a good LBO target, and having a solid understanding of basic accounting and cash flow models. They won't expect you to have a lot of deal experience given that you've only done an internship in banking, but being well prepared for those types of questions (i.e. paper LBO / cash on cash return math, etc.) will go a long way.

"I'm sorry baby, you were the Sun and Moon to me. I'll never get over you.... You'll never get over me..."
 

if you've done earnings forecasts and modeling at your HF, i think you should have the basics covered, esp. since the PE fund isn't pure buyout i'd be less concerned with LBO modeling and more focused on talking about what you're strongest at: fundamental analysis.

more spec., i'd be prepared to talk about how your L/S equity experience has uniquely prepared you for a role in PE. it'd be gold if you covered the same sectors and verticals the PE shop looks at -- then you could talk about an industry in detail: what the drivers are, risks, key players, barriers to entry, etc. if you were involved in idea generation at the HF, you could talk about how your time there taught you how to craft investment theses and identify value in an industry. talk about company fundamentals. the key thing will be to intelligently dissect and analyze industries and companies within those industries.

the challenge i presume will be thinking about the risk/reward of investing up and down the cap structure and NOT just accumulating positions in common, so be able to think about how the return profile might differ when investing in common versus pref equity, mezz loans, hybrids, etc. the other key difference is being able to discuss investment timing (HF being relatively "quick" money, PE generally more long-term approach to capital)

 
alpha mail:
if you've done earnings forecasts and modeling at your HF, i think you should have the basics covered, esp. since the PE fund isn't pure buyout i'd be less concerned with LBO modeling and more focused on talking about what you're strongest at: fundamental analysis.

more spec., i'd be prepared to talk about how your L/S equity experience has uniquely prepared you for a role in PE. it'd be gold if you covered the same sectors and verticals the PE shop looks at -- then you could talk about an industry in detail: what the drivers are, risks, key players, barriers to entry, etc. if you were involved in idea generation at the HF, you could talk about how your time there taught you how to craft investment theses and identify value in an industry. talk about company fundamentals. the key thing will be to intelligently dissect and analyze industries and companies within those industries.

the challenge i presume will be thinking about the risk/reward of investing up and down the cap structure and NOT just accumulating positions in common, so be able to think about how the return profile might differ when investing in common versus pref equity, mezz loans, hybrids, etc. the other key difference is being able to discuss investment timing (HF being relatively "quick" money, PE generally more long-term approach to capital)

All of that and then also talk about how you are very interested in the governance aspects of the job, supporting partners acting as directors on portfolio companies' boards, and supporting the identification and execution of portfolio companies' organic and inorganic growth catalysts-- these operational aspects are unique and you aren't getting those now unless you are @ an activist shop but even then you aren't as close. I know you're trying to be stealthy but its v unclear wt these guys do...If they do mezz and preferred vis-a-vis late stage/mature then are they a mezz-ish shop? If so scour the board there's been a bunch of hy/mezz modeling questions. If they acquire pref shares in the context of early stage then understand typical early stage pref structures, things like liq prefs, cap table modeling/dilution/anti-dilution protection, the seniority of prefs in liquidity events..

 

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"Whenever you feel like criticizing any one, just remember that all the people in this world haven't had the advantages that you've had." -F. Scott Fitzgerald
 

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