Private Equity Recruiting Process (From Banking)

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Since I've been getting a lot of questions, I thought I would write a post about what I wish I had known when prepping for PE. I currently work at an UMM private equity fund and had previously done two years in banking. These are just my recommendations based on my experience so please take them with a grain of salt.

5 things you need to prep:

1) Behavioral Questions

I would make a list of behavioral questions and write out answers to them. Common questions include (1) Why did you pick (college, major, your current job, your current group, your current city) (2) Why do you want to move to (private equity, specific firm, city of firm, type of firm (MF, UMM, MM), accomplishments, challenges etc. You can really find questions like these on any interview site.

2) Case Studies

For me, this was the most important part of recruiting, and basically represents how to think as an investor. Almost every interview I went to had some variation of "why is this company a good or bad investment?" My approach was split up into the following framework, which now that I'm at a PE firm isn't necessarily what I look for. I would work on structuring an answer for these cases that works for you. I personally started off by commenting on the industry, citing how the company was doing in terms of their levers for FCF / paper LBO, explaining some additional things I would diligence, and concluding on whether I would invest. Cases could also come with a model and investment memo where I would basically type out positives, negatives and additional diligence items with a conclusion.

My rough framework:

  • A) What typically makes a good LBO candidate: Low purchase multiple, steady and predictable free cash flows, value add from the PE firm (organic growth such as expanding stores, cost cutting opportunities, inorganic growth like bolt-ons), limited capex and working capital requirements, good exit strategy
  • B) Generally good companies: Growth in industry, competitive advantage / barriers to entry, good management team, resilience to downturn, high growth margins (since it's hard to move substantially)
  • C) PE due diligence: Industry (Porter's five forces), company operations (price or volume growth, fixed or variable cost structure, ROIC, recession-resistance), company financials (basically everything in a paper LBO like capex, working capital, projected financials), strategic initiatives (any non-core business lines, room for improvement, legal or regulatory risks) and exit strategy (industry consolidation, IPO possibility)

3) Deal Experience

If you're recruiting as a first year, there is a possibility that you'll have next to no experience given the timeline (probably mid September but don't quote me on this). It doesn't really matter what you did on the deal / pitch since we're aware it'll probably be along the lines of "spread some comps or built a DCF". What matters more is you can explain whether the company or deal is a good PE investment. I would memorize all the numbers you need for a paper LBO + price / volume growth + fixed / variable costs (obviously numbers can be rounded) and read up on the industry. I would then apply the case framework that you developed onto your individual deals. You can basically practice this portion of the interview by yourself by asking what you did on the deal, whether it's a good investment, and how you made certain assumptions for projections, etc.

4) Models

Models are basically just a check in the box to make sure you understand LBO mechanics. It's largely about memorizing how to build them. I used the WSO guide (https://www.wallstreetoasis.com/guide/private-equi...) for the paper and 1 hour LBOs, and I just built 3 statement LBOs off templates from my banking group. You can find a bunch of paper LBOs through a quick Google search, and I would know how to do them quickly since it's often done in earlier interview rounds. You can build models off any company's financials really so you don't necessarily need a template. When I actually did models for the interviews, I received a PIB (10-Ks, 10-Qs, industry reports, etc.). My approach was I built a fully functioning model in terms of mechanics but no revenue growth, steady margins, etc. and as I was reading the PIB, I filled out some assumptions. I thought this was helpful since flat projections make the model easier to troubleshoot.

5) Technical Questions

I would go through LBO / buyout specific questions such as impacts on IRR / MoM. I mostly went through the WSO guide for this. I'm sure there were questions from the banking recruiting materials as well.

Process / Other

Headhunters
These include, but are not limited to, Amity, Bellcast, CPI, Dynamics, Glocap, GoBuyside, and HSP. When I was recruiting, CPI and HSP covered the most MF / UMM clients. Each HH covers a subset of PE clients, and in certain cases one HH will cover a firm on-cycle and another HH will cover the same firm off-cycle. I would reach out to headhunters after you have prepped behaviorals for why you want to go to PE and what types of funds you want to go to. HH will likely email you if you're in a typical IB group, but you can always ask 2nd years in your group for their HH contacts, and HH should be more than happy to set up meeting.

Generally most people say they want a certain size for the latest fund (i.e. $1B+ / $10B+ MF) and industry focus. You can also ask to receive a list of the firms that HHs cover from the 2nd years in your group and cite specific funds that you're interested in during the meeting. HH will also ask about deal experience and I would use the same approach outlined above (what you did, if you think it's a good investment) but in a simplified form unless they ask more. Generally it's important that headhunters like you so you can get interviews. If you're getting interviews from certain HHs and not others when recruiting kicks off, I would email other HHs about the interviews you're getting to see if they can slot you in. e.g. "I'm interviewing for xyz firm today, but was more interested in abc firm. I was wondering if abc firm has any availability or has kicked off recruiting"

Misc

On-Cycle: *Super hectic with a lot of overlapping interviews. No one really knows when it'll start and there will be a lot of buzz every week leading up to it. If you do well, the firm will likely keep you there (some of my interviews were 10+ hours) so I would prioritize firms that you're excited about if you have too many interviews. If you're interviewing later in the day and are doing well, the interview will likely continue the next day or until you can meet partners.
*Exploding Offers:
I've mostly heard of offers expiring the same day or when you leave so you'll likely not get to shop around.
Locations: I've heard of people traveling to NYC as soon as recruiting kicked off, but I personally don't have that experience.
Work Teams: Some banks are more supportive of recruiting than others, so I would talk to your group's 2nd years who have recruited on who in your group is going to be okay with covering for you / who you can talk to for a recommendation in case it's needed.
Off-Cycle: I don't have too much experience with this but you can still get MF / UMM interviews. It'll be a more drawn out process, but I think it'll still be similarly competitive based on how early on-cycle is.

Additional Prep

I've heard of people reading a bunch of industry primers (from research analysts) and books like Competition Demystified / other investing books if you're just generally interested in the PE industry.

Prep Plan
I would focus on everything except deal experience during your training period given how early the recruiting process has been. Good luck!

Comments (59)

May 6, 2020

thank you for posting this, it's always nice to hear perspectives

  • Analyst 1 in IB - Gen
May 6, 2020

good post, thank you.

with on-cycle so pushed up, what are your thoughts on talking about a deal one worked on as a summer analyst? how hard would it be to convince an interviewer/HHs one was actually adding value and essentially replacing a FT analyst instead of just pushing papers and hitting F9?

i was staffed on a 10-figure buyside for a strategic sponsor in a relevant sector. didn't close since our client got outbid (by a PE fund) in the final round, but i honestly think it's better experience than i will get in 4 weeks FT on the desk.

Most Helpful
May 6, 2020

In interviews, the interviewer will either pick a deal from your resume or let you pick your own deal to talk about, so it is possible to talk about your deal from an internship. I would recommend against it since it's from over a year ago, and I've never really seen an intern do meaningful work on projects. I would probably ask you what you think allowed the other firm to get to a higher valuation than your client.

I didn't have any closed M&A or actually live M&A deals for that matter on my resume when I was recruiting. I don't think it hurt me at all in the interview process. I thought the benefit was that the deals that I did have were easy to explain, and I could spend more time on explaining whether they could be actionable PE deals. (They weren't, so I explained what would have to change about the companies for them to be good PE targets)

No one is expecting you to have closed a deal or done any really meaningful work with the timeline. Saying you worked on anything at all is really just a check in the box. IMO, people care much more about you having thought about the deal from a buy-side perspective.

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  • Analyst 1 in IB - Gen
May 6, 2020

got it, much appreciate the insight. definitely gonna keep this in mind as recruiting ramps up.

it is a bit frustrating because despite being a BB, my team runs very lean so i felt i did have tangible impact. what would you define as "meaningful work" on a deal?

as for your follow-up, we got outbid by a fund in part because our strategic client did a lot deeper diligence due to their sector expertise. for example, they did not believe the sell-side's smooth capex assumption, instead relying on their own bottoms-up model, which revealed the chunkyness of capex in later years. this pressured covenants and lowered the total debt quantum my bank could arrange, so we had a higher WACC = lower valuation. i personally thought it was not a good acquisition at the premium the winning bidder paid.

  • Intern in IB-M&A
May 6, 2020

Any insight on how this process works from a different city? Incoming analyst to a tier 2 city but I'd love to end up in NYC doing PE. How much harder is that compared to being in NYC?

May 6, 2020

I don't have any direct experience with this. Considering that the process is pretty much done in a week (maybe 1.5 weeks) and most groups within MF / smaller firms only need to hire like 4 associates, I would consider traveling to NYC when recruiting kicks off. I would also communicate this to your HHs and say that you're willing to travel to NYC for interviews.

For example, some SF/Menlo-based firms were planning to come to NYC to recruit but had finished recruiting from the SF pool before that happened. I imagine the opposite would happen to NYC based firms. In fact, PE firms will all be scrambling, so I doubt they'll be making plans to visit other cities considering the large pool of candidates available in NYC.

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  • Incoming Analyst in IB - Ind
May 6, 2020

Do you have any idea how recruiting may work this year with COVID and travel/WFH restrictions? Do you think it's more likely to be pushed back or potentially be zoom chats with HH and Zoom interviews?

May 6, 2020

Honestly I have no idea. I could see HH meetings being Zoom / calls. I actually have heard of HH meetings being calls, after you have already met the HH.

As for interviews, I imagine we'll be back in the office by late September unless there is a second wave. I don't think it should make a difference. One interview I had was for a non-NYC location and the entire interview was over the phone since they couldn't send people to NYC in time.

  • Incoming Analyst in IB - Ind
May 6, 2020

Do non-NYC firms (Chicago/Philadelphia/Boston) tend to do more interviews over the phone/video since they aren't in NYC themselves?

  • Incoming Analyst in IB - Ind
May 6, 2020

When giving a head hunter a range of fund sizes you're interested in, how narrow do you have to be? Could you say you're interested in $1-5B recent fund size, or is that too broad?

May 6, 2020

As for fund size, I think that's narrow enough. There aren't a ton of funds in that range when you add on additional qualifiers like industry/sector focus, strategy, location, bschool/direct promote, etc.

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  • Incoming Analyst in IB - Ind
May 6, 2020

If you give a narrow fund size, strategy, location etc. can you give a few different industries you're interested in or do you need to be specific on one industry? Can you say Healthcare and Industrials to the same HH or do you need to be very specific?

  • Analyst 1 in IB-M&A
May 6, 2020

If headhunters are the gatekeepers, how important is networking with people at the actual PE firms? Also which level is important to network with? Is it like banking where juniors have influence on who gets interviewed?

May 6, 2020

I personally did 0 networking for PE. I think general cold-emailing is fairly low ROI. I've heard of a few success stories of people networking to get interviews, but I don't think it's very common. In my group, a few associates recommended their buddies from old banking groups to get interviews. I probably wouldn't stick my neck out for someone unless I had worked with them and they had great work product. HH will present a massive list of names (with stats) to each firm to screen for interviews, and that's where most candidates come from.

What I think networking could be helpful with is getting a better understanding of different firms to help answer "Why XYZ firm?" There are nuances to different groups and funds that you probably wouldn't have a good grasp on unless you actually worked there.

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  • Prospect in Research - FI
May 6, 2020

Thanks so much for this! Where did you turn for practice with case interviews + build your intuition. I know you mentioned the general framework, but I've been having trouble knowing what a "low purchase multiple" would be or how to know there are barriers to entry or what good cash flow numbers look like. Any advice would be super helpful

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  • Incoming Analyst in IB - Ind
May 6, 2020

I can't say precisely what a good cash flow or multiple is. I would guess it's all relative but in terms of barriers to entry, Morningstar has good reports that you can usually access through your school or your investment broker (broker dependent) and that will give barriers to entry.

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  • Prospect in Research - FI
May 6, 2020

Thanks for the reply, for a case study, would they normally give you comps so you could see who has a low or high multiple and who has good or bad cashflows, or would you come in with that intuition for a given field/industry?

May 6, 2020

There would probably be comps in the PIB since research analysts often publish them. If there aren't, then you don't have to use multiples when expressing your conclusion. When I say cheap, you would basically see that your comp set has higher multiples for a very similar profile.

In my mind, multiples are based on four things - industry factors, size, profitability, growth. For industries that you work in, you'll probably get a good sense on what the range for comps are since you'll probably spread comp sets. Ex. best-in-class software is 10.0x+ TEV / Revenue due to 30% growth, while some capex / worse margin profile industrials company might be 8.0 TEV / EBITDA.

For case framework, you can simply do a paper LBO or 1 hour model. Think about every lever that you can use to change your returns and that'll basically help you gain some intuition. Ex. price increase flows straight through while volume increase has COGs. I think it'll largely come with the job, but this might be helpful given the recruiting time frame.

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May 6, 2020

Hi thanks for posting this. I'm curious if you have any input about how recruiting might be different for LMM/GE shops? Are they still largely driven by headhunters, or is the recruiting process more independent?

May 6, 2020

My friends who have gone to smaller shops have gone through HHs. It's probably just difficult to know what a firm's hiring needs are without HHs. A lot of them were off-cycle. Everyone gets emails about smaller shops all year round.

Larger growth equity shops like TPG growth will be on-cycle. I would assume small shops would be off-cycle. I would ask your HHs for specifics.

May 7, 2020

When did you start prepping for PE interviews? How long did it take?

May 7, 2020

Assuming you're asking to decide when you should start studying. It's probably now / ASAP to best position yourself and not be incredibly stressed out every week of September.

I didn't study enough, maybe a month in-between work hours. I ended up cramming notes during taxi rides to interviews, so don't be like me... Some people don't study at all and land MF / UMM offers, but that's pretty rare. It'll be surprisingly hard to find time in between training / series testing / first few months on the job, especially if you're trying to make a good first impression.

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  • Analyst 1 in IB - Ind
May 7, 2020

Any suggestions for case prep materials (e.g. do you wish you had read something like Case in Point)?

May 7, 2020

I didn't read it, but it didn't seem too useful? By cases, I don't mean consulting cases. It's just a question of if something is a good investment or if you'd rather invest in A or B.

I haven't seen a guide or anything that really walks you through this and it's something I think you have to develop yourself since it is basically "thinking like an investor." Understanding model drivers helps. Reading about investing helps. Understanding general trends in industries (like if it's cyclical, general sense of margins) helps. To me, this is a main differentiator between candidates.

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May 7, 2020

I've heard of senior bankers sometimes plugging analysts as they recruit--how does this process typically work, and what's the best way to leverage senior bankers who are willing to help?

May 7, 2020

This is pretty group specific, so I would ask the 2nd years in your group. The seniors may be willing to help with the mindset of building a better relationship with the buyside firms or they may be annoyed that you're thinking about leaving when you haven't been on the desk for 2 months. I've heard of seniors recommending people for interviews if they're very familiar with the firm (do a lot of deals), recommending people when it's the final round and there are only a few candidates left (might be tough with timeline), and being asked to be references (I provided VP references but I know people who had to give MD / SMD names for references).

I don't have any personal experience with this. My group wasn't supportive of 1st years recruiting and wouldn't help unless you were a 2nd year and already gotten a good full-year review.

    • 1
May 7, 2020

Very helpful. Thanks

May 7, 2020

thank you!

May 7, 2020

saved, thank you !

Array

  • Analyst 1 in IB-M&A
May 7, 2020

I know MF/UMM is highly competitive so how do you think the best way is to go about hedging your bets?

Do you recommend strategically using the HH's? For example, if you are interested in MF/UMM, would it be a good idea to take a meeting with an HH that serves mainly MM clients and say you are interested solely in MM?
Thanks!!

May 7, 2020

Not entirely sure what your question is specifically. Assuming you're referring to being worried you won't get MF / UMM interviews. Since recruiting is done in a week and you only can interview at so many firms, I would recommend being straightforward with your HH and telling them what you want. If they don't think you'll get MF looks, they'll just give you less popular interviews. They're getting paid as long as they place you, it doesn't matter where. You already have off-cycle to hedge for on-cycle recruiting.

    • 1
May 8, 2020

If you whiff on-cycle is there a chance to get a second shot off-cycle?

May 8, 2020

IMO, if you're well-prepped, you can get a job (no guarantee on fund size / industry). There just aren't nearly as many MF / UMM main groups that go off-cycle. It's a second chance, but in no way similar to on-cycle. My friend recruited all year off-cycle, landed 3 offers, but ended turning them all down for on-cycle the next year.

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  • Intern in IB - Ind
May 8, 2020

Undergrad sophomore interning in PE this summer, signed with mid tier BB for summer 2021. What should I try to get my hands on in my internship to help me out in on cycle recruiting? Will it even help, and what else should I try to do in college that will position me well for on cycle?

Also, my graduating profile will be top 40 semitarget with weak representation at UMM/MFF, 3.7 GPA, 1530 SAT, FT at Barclays/Citi/BAML. Do I still have a shot at UMM/MF or do I need to revise my goals downward? Feel free to be brutally honest.

May 8, 2020

I think you should focus on deciding if you like PE / finance in general first. It's not a path you have to take just because other people are doing it.

It also depends on what group you're in. In my experience, M&A and sponsors groups place the best but you should check what your group's placement has been in recent years through some LinkedIn stalking.

I would just do a good job at your internships so people will vouch for you and maybe even refer you to firms. For the PE internship, I would ask a lot of questions around their strategy on deciding how to invest.

Your stats will come into play with HH, but it shouldn't block you from recruiting opportunities. Try to differentiate yourself with industry expertise, investing mindset, soft skills, relationships, and preparation.

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  • Intern in IB - Ind
May 8, 2020

Makes a lot of sense, thanks so much. Also, is there some kind of "threshold" for GPA I should try to hit for on cycle recruiting at UMM/MF? Will a 3.7 hold me back, or should I do whatever possible(take extremely easy classes) over these next 2 years to get it up?

  • Associate 1 in PE - LBOs
May 8, 2020

You'll be able to get MF / UMM interviews with this profile. Maybe not every single place you'd like a shot at, but to be fair that's the case for the vast majority of candidates.

    • 1
May 8, 2020

Thank you! What a helpful guide.

  • Incoming Analyst in IB - Ind
May 10, 2020

As an incoming analyst, is now too early to start networking with PE associates? Or would it be better to wait until I've started training/hit the desk. (This is for MM/LMM associate positions which I'm more interested in compared to MF/UMM where HH are more important)

May 11, 2020

I don't think it's ever too early to network. You'll likely not have as much time during training / when the job starts.

  • Incoming Analyst in IB - Ind
May 11, 2020

How would you recommend going about networking? More specifically, would it be better to go through LinkedIn or just use the email of the associate/VP on the firm's website? The latter seems simpler but wasn't sure how it's looked upon to directly email.

Second, if things start opening back up over the next month or two before training starts, would you recommend possibly setting up coffee chats if you're currently in the city you want to recruit for (and won't be in once training starts)?

Specifically for MM not UMM/MF

  • Intern in IB - Gen
May 12, 2020

.

May 12, 2020

There are definitely state school kids at UMM / MFs.

I'm not going to comment on your stats since I don't think it's helpful. You can see what historical placement has been from your banking group on LinkedIn. Depending on your meetings with HHs, they'll have the best sense of what interviews they would recommend you for.

  • Intern in IB - Ind
May 27, 2020

If an interviewer were to ask something like "Would you rather invest in a steel manufacturer or a luxury yacht maker, which would you invest in." How would you answer?

Also are you able to ask questions like, "can you talk about the competition in each", etc or do you have to go based on what you can assume?

May 30, 2020

Either is fine. If your interviewer prefers questions or assumptions, and you're doing the opposite, they'll just stop you and let you know. You can also say something like "I'm not too familiar with these industries, so let me know if my assumptions are incorrect."

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  • Intern in IB - Ind
May 31, 2020

Thanks!

  • Incoming Analyst in IB - Ind
Jun 2, 2020
Comment
  • Intern in IB - Ind
Jun 2, 2020
Jun 4, 2020