11 Interview Questions Private Equity Firms Ask (and How to Answer Them)

Published: Sep 28, 2015

Topics: Finance Interviewing Job Search MBA

Although the interview process in private equity varies by firm, all applicants will participate in a “fit” interview. In these, you will answer questions about your background or experience, and the hiring manager assesses your credentials and personality to see if you are a good match for the firm. Some firms also ask candidates to complete a paper LBO or walk through a case study. Junior candidates and recent MBAs can expect to be asked to complete modeling tests and personality assessments. Candidates who advance past these initial steps will often be taken out to lunch or dinner with senior team members, who will again assess their fit and ability to interact with coworkers and clients. As a general rule, the more experienced the candidate, the longer the interview process will be.

In any case, there are a handful of mistakes that, firms say, candidates make in their interviews. The first is projecting the kind of hot-shot aggressiveness that seems to be the Wall Street stereotype. That may be all well and good for a position on a trading desk, but private equity firms tend to prefer more cerebral, thoughtful candidates. Their investments are for the long haul, and they don’t invest lightly. Be strong and stick to your convictions, but don’t be cocky. Present yourself as an aggressive value seeker, but one who does his or her homework.

Second, remember who you’d be working for—the private equity fund’s shareholders and the firm itself, not the portfolio company. “The industry has a sort of PR campaign going that says we’re good for companies,” says one managing director of a small private equity firm. “We present ourselves as a hope for troubled companies, someone they can turn to. That’s all well and good, and it’s often true, but we’re there to find value and make money. Period.” So don’t make the mistake of putting a target or portfolio company’s interests ahead of the fund’s or firm’s. Especially with hypothetical questions, you need to at least discuss the various value opportunities in dismantling a portfolio company’s unprofitable divisions, spinning off pieces, or just closing up the whole company and selling the real estate it has for a profit.

Questions during an interview with a private equity firm tend to fall into four categories—your expertise, knowledge, character, and vision and goals. The following are some samples of each.

EXPERTISE QUESTIONS

Tell me what you did in your last position that helped your company find value?

This goes to the very core of what it means to work for a private equity firm. You should be able to walk into an interview with four to five solid examples of how your actions directly saved your previous employers money. This could be from developing operational efficiencies to ferreting out information that helped save money on a M&A deal. Maybe your research helped a company develop a new product line, or your ideas spurred cost savings on benefits. Whatever it is, be prepared to talk frankly and in detail about how you are an agent of value creation.

What are you most proud of in your career to date?

This is another opportunity to talk about things you’ve done to help create value. It can be an investment you identified or a trend you spotted, or any of the things mentioned above. But make it a good one, and make it relevant to the private equity firm’s goals.

What’s been the most disappointing thing you’ve experienced in your career so far?

This is a very nice way of asking if you’ve learned from your mistakes. Nobody’s going to get it right all the time, and they’re going to want to know how you deal with adversity. Now, if your actions directly resulted in torpedoing a billion-dollar M&A deal … perhaps you may not want to mention that! But be prepared to talk about a project or deal that didn’t go as planned. Don’t blame others too much, either. Take responsibility for your part and explain how you’ve changed your approach since. Send the message that you learned something from the experience.

KNOWLEDGE QUESTIONS

What do you think is going to happen to LBOs/M&A/private equity in the coming months and years?

You need to be up to speed on the state of major deals out there, financing, future growth, fund raising, the whole thing. Don’t be surprised if an article in The Wall Street Journal from that very morning is mentioned, and be prepared to respond to it. Naturally, a reasonably bullish outlook for the industry is likely an asset—why else are you applying?—but don’t sugarcoat it, either. Talk about the challenges facing the industry in a reasonable way, how the industry might overcome them, and why you ultimately think the industry will continue to grow and prosper.

Is the market for mega-cap M&A/LBO deals done?

Another question having to do with your knowledge of current events. There was a point when the industry seemed to be poised for that $100 billion LBO deal. That may no longer be the case, at least over the next few years. Do your homework, read up on everything you can, and talk to contacts in the industry. Get a feel for the trends within private equity, and be able to talk intelligently about them.

Company X is a struggling retailer with prime real estate. Do you break it up and sell the land, or try to refresh the business?

You can expect at least one hypothetical question regarding your area of expertise during the interview, and probably another that has more focus and better elucidation than the one above. Know enough about the industry to mention a previous deal involving a similar situation and how you might handle things now.

PERSONALITY QUESTIONS

What makes a good private equity deal-maker/fundraiser/researcher/associate?

This should be relatively easy. For most positions, it’s someone with an eye for opportunities to create value, developing plans to create value, executing said plans, etc. The whole point of a private equity firm is to wring as much value as one can out of an investment. And that should be the focus of your answer.

Why do you want to work in private equity?

Money, prestige, or a perception of the industry as the “next big thing” will get you shown the door. Of course, those already working in private equity would be lying if they said they didn’t enjoy those things. But ultimately, once the money’s in the bank and the person’s name is in boldface in the newspaper, the challenge is what keeps them coming back. Private equity, to those in the industry, represents the very pinnacle of investing. Turning around whole companies, finding value where there doesn’t appear to be any… these are what keep private equity folks in the game.

Alternatively, you’ll sometimes be asked why this firm. Know the firm, and know what makes it tick. Tailor your answer accordingly.

Where do you want to be in five years?

If you’re young and going after the equivalent of an analyst or associate position, feel free to talk about other opportunities. Perhaps you want to get an MBA if you don’t have one already, or even a doctorate. Perhaps you want to build on your experience and join a portfolio company. It’s good to have other ideas, but make sure that your position in private equity takes priority. It’s perfectly fine to say, “I don’t know, but I’m eager to find out what kind of opportunities would present themselves if I get the chance to work here.” If you’re older and applying for an experienced associate, VP, or managing director position, the firm isn’t going to want to hear anything other than a commitment to staying and growing with the firm. They’re potentially going to throw a lot of money at you, so reassure them that their return on investment will last a good long while.

VISION QUESTIONS

What do you think this company does right, and what do you think we do wrong?

First off, a bit of a trick question here. The company doesn’t do anything wrong, it simply has areas in which it can improve. That said, you should be knowledgeable enough about the company and its recent deals to talk intelligently about how the company operates. Play up its strengths, certainly, but don’t be sycophantic. And don’t pull any punches on ways it can improve, but again, don’t be too negative.

If you were given a chance to go after Company Y, would you take it, and what would you do with it?

Another hypothetical, with “company Y” likely a company in the news lately for various and sundry problems. If it’s a company with too much debt and not enough upside, feel free to say you wouldn’t take it. If it’s a company with a decent balance sheet and some operational problems, then talk about what you’d do. Ultimately, you’d have to be up on the news to consider whether there’s an opportunity to create value within the framework of an acquisition.

The above was adapted from the new Vault Career Guide to Private Equity.

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