What are pre-MBA private equity associate interviews like?

What are pre-MBA private equity associate interviews like?

I often respond to questions from readers on the private equity interview process. Here is a question I recently responded to: 

 

Q: What are pre-MBA private equity associate interviews like?

A: The pre-MBA PE recruiting process typically unfolds over a full year. In the spring and early summer, more than one full year before actual PE start dates, various private equity firms and headhunters will host info sessions about the PE profession and their specific firms in your city. In New York City, for instance, these info sessions are quite common, and notice of them is distributed to all first-year analysts at prestigious investment banks and consulting firms. They will typically host these events at a hotel or their offices with catered food and drinks while they walk through an overview of their firms, specific deals they have done, and guidance on how to engage headhunters to apply and “be presented” for interviews. They will also take questions from the audience about any of these topics.

When the recruiting season actually begins a couple months later, analysts and other candidates will begin dropping resumes to headhunters and setting up preliminary screening interviews with them so they can determine the best fit for which candidates to put in front of which firms.

Private equity interviews themselves are generally structured over multiple rounds—sometimes 3, 4, or even more rounds—and the type of people you meet at each step of the way and the kinds of questions you are asked will vary between rounds (and firms).

They generally consist of a heavy combination of case interviews, technical finance questions, modeling tests, and personal fit interviews to test 6 things:

1. Financial modeling
2. Operational modeling
3. Macro / market due diligence
4. Strategic analysis (as tested through case interviews)
5. Creating slide presentations
6. Personality fit

Some firms also evaluate your potential to source new deals if they require associates to contribute to deal origination, although for leveraged buyout firms this tends to be less common.

Be sure to check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for in-depth tips and strategies on how to successfully interview for jobs at top private equity firms!

Also be sure to check out our step-by-step Private Equity LBO Modeling Training Videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.

Who are the top headhunters for private equity jobs?

Who are the top headhunters for private equity jobs?

I often respond to questions from readers on the private equity interview process. Here is a question I recently responded to: 

 

Q: Who are the top headhunters for private equity jobs?

A: The top headhunters for private equity jobs I know of and have worked with are SG Partners, CPI, Pinnacle Group, Oxbridge Group, Weatherly Group, and Phoenix Group International. There are also independent headhunters who have strong individual relationships with specific PE firms.

Be sure to check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for in-depth tips and strategies on how to successfully interview for jobs at top private equity firms!

Also be sure to check out our step-by-step PE modeling training videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.

Why did you leave the private equity profession?

Why did you leave the private equity profession?

I often respond to questions from readers on the private equity interview process. Here is a question I recently responded to: 

 

Q: Why did you leave the private equity profession?

A: I left private equity because, in the end, I had more of an itch to be on the operating side and, longer-term, to do something entrepreneurial in the tech startup world. That being said, I definitely learned hugely valuable skills in private equity, particularly around how to break down key business drivers, how to model the financials and economics of a company, and how to discern where the biggest sources of value creation might be in a potential portfolio company. I also strengthened my project and process management skills and learned how to manage due diligence and many different stakeholders under tremendous pressure and deadlines. In the end, though, I realized I wanted to broaden my experience beyond finance (for now) and gain operating experience and start a company. It’s pretty hard to get that in private equity, which is why I left. Maybe I’ll return to finance someday (I’ve already got PE experience and have finished all the CFA exams), but for now I’m really enjoying learning different aspects of company building and wearing a lot of different hats in my own startup!

Be sure to check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for in-depth tips and strategies on how to successfully interview for jobs at top private equity firms!

Also be sure to check out our step-by-step Private Equity LBO Modeling Training Videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.

Why Can You Make So Much Money In Private Equity?

Why Can You Make So Much Money In Private Equity?

Why can you make so much money in private equity as an investor?

Let’s look at both sides of the transaction. Investment bankers make money by advising companies, structuring sales, raising capital, and taking a percentage fee on each transaction.

By contrast, private equity firms make money by exiting their investments. They try to sell the companies at a much higher price than what they paid for them. The profits are then divided up based on a distribution waterfall. The amount paid to the GP is generally referred to as carried interest, or carry, and is typically around 20% of the profit made on a fund exit.

The GP also collects management fees, typically around 1.5-2.0% of committed capital during the investment period when new investments are allowed (usually the first 5 years). They charge this management fee to pay salaries and “keep the lights on,” that is, to cover the core operating costs of the fund before and between investments, since profits in PE are very lumpy — there can be years of no profit and then suddenly tons of profit come raining down in a single year when multiple companies are exited.

Management fees alone represent a pretty significant chunk of cash over the life of a fund. And they are not based on performance! If a fund has a 10 year life, you can do the math. For even a paltry $50M fund, a 2% annual management fee means $1M per year for at least 5 years, regardless of performance, no matter how few investment professionals there are (there might only be one or two!). A $1B private equity fund would draw $20M per year in management fees alone, a handsome sum especially if you have a small investment team.

That’s why PE firms pay such high salaries to associates and investment staff. Mega funds may have many billions under management leaving hundreds of millions just for employee compensation. Since running a PE fund isn’t exactly a capital intensive business (you only need some laptops, phones, and desks), employees end up getting paid a lot. In terms of headcount, even the largest mega cap funds may only have 150 investment professionals. Small firms might just have a dozen or even a few.

Average compensation per employee from management fees alone could easily top $1 million annually, although senior professionals would always earn more than junior staff.

 

Be sure to check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for in-depth tips and strategies on how to successfully interview for jobs at top private equity firms!

Also be sure to check out our step-by-step Private Equity LBO Modeling Training Videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.

How Are Private Equity Firms Structured?

How Are Private Equity Firms Structured?

To understand how private equity firms are structured, it’s important to understand that the partners of a private equity firm comprise the “General Partner” (GP) of a fund. They obtain capital commitments from (typically) institutional investors known as Limited Partners (LPs). These institutional investors include pension and endowment funds, retirement funds, insurance companies, and high net worth individuals. Read more

Types of Private Equity Funds

Types of Private Equity Funds

What are the different types of private equity funds out there? “Private equity” is a generic term used to identify a family of alternative investing methods; it can include leveraged buyout funds, growth equity funds, venture capital funds, certain real estate investment funds, special debt funds (mezz, distressed, etc), and other types of special situations funds.

Funds can specialize in particular industries or be industry-agnostic, and they can focus on particular geographies as well. Let’s dig a little deeper into the most common types of private equity funds. Read more

What Is Private Equity?

What Is Private Equity?

“Private equity” (PE) is a generic term describing a few related but different approaches to investing in either private companies or publicly traded companies that subsequently “go private” as a result of a private equity transaction. That’s what “private” means in “private equity”: privately owned and traded stakes in companies that are not subject to public market scrutiny and generally free from federal securities regulation.

PE includes a variety a fund types, including leveraged buyout firms, growth equity firms, and venture capital firms. The differences between these fund types relates primarily to (a) the stage of the company the fund invests in (e.g., early vs. late stage) and (b) the methods used to finance the investment. Read more

What are Bain Capital pre-MBA private equity associate interviews like?

What are Bain Capital pre-MBA private equity associate interviews like?

I often respond to questions from readers on the private equity interview process. Here is a question I recently responded to:

 

Q: What are Bain Capital pre-MBA private equity associate interviews like? 

A: I worked for a Bain Capital PE spinout previously, which was basically a huge “team liftout” from Bain Capital and Bain & Company, including the head of worldwide HR at Bain Capital and the former chairman of the Bain Capital management committee. They adopted a lot of the same screening, hiring, and training techniques that Bain Capital did, and here is what I encountered in my interviews.

The process was structured over 3 rounds, with the type of people at each step and the kinds of questions asked varying between rounds. It consisted of a heavy combination of case interviews, technical finance questions, modeling tests, and personal fit interviews to test 6 things:

1. Financial modeling
2. Operational modeling
3. Macro / market due diligence
4. Strategic analysis (as tested through case interviews)
5. Creating slide presentations
6. Personality fit

Be sure to check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for in-depth tips and strategies on how to successfully interview for associate jobs at top PE firms like Bain Capital.

Also be sure to check out our step-by-step Private Equity LBO Modeling Training Videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.

Top Private Equity Firms in New York City

Top Private Equity Firms in New York City

New York City is a major hub for private equity activity so here is a list of the top private equity firms located in New York.

Top 15 Private Equity Firms in New York by assets raised over last 5 yrs (billions).
  1. Goldman Sachs Principal Investment Area = 49.05 billion
  2. Kohlberg Kravis Roberts = 39.67 billion
  3. Apollo Management = 32.82 billion
  4. Blackstone Group = 23.3 billion
  5. Warburg Pincus = 23 billion
  6. Cerberus Capital Management = 14.9 billion
  7. AIG Investments = 14.22 billion
  8. Fortress Investment Group = 14 billion
  9. Clayton Dubilier & Rice = 11.38 billion
  10. Lehman Brothers Private Equity = 10.22 billion
  11. J.C. Flowers & Co. = 7 billion
  12. New Mountain Capital = 6.69 billion
  13. MatlinPatterson = 6.67 billion
  14. W.L. Ross & Co. = 6.65 billion
  15. Welsh Carson Anderson & Stowe = 5.88 billion

(excerpted from the blog Private Equity Blogger)

 

Be sure to check out our PDF guide “How to Nail Your Private Equity Interview (whether you have finance training or not)” for in-depth tips and strategies on how to successfully interview for jobs at top private equity firms!

Also be sure to check out our step-by-step Private Equity LBO Modeling Training Videos for walk-through tutorials on how to build an LBO model, navigate Excel with ruthless efficiency, and rapidly create an LBO PowerPoint deck to present to your PE interviewers.