One of the biggest challenges you’ll face when moving from investment banking to private equity is getting called into an interview in the first place. There are some sobering statistics about your chances of getting sifted through the masses of applicants trying to break into the buy-side.
Every entry-level role attracts some 250-300 applications and, of these, 30 make it through to the first line of defence (which often means meeting a recruitment agency). Then the recruiter puts forward 10 candidates to the private equity firm, of which usually six are selected for the first round of interview. After the first round, two candidates then are invited back to duel it out for the job.
“You can’t waste the opportunity,” says Gail McManus, managing director of Private Equity Recruitment. “Private equity interviews are incredibly competitive, and you don’t get many chances to practice.”
It’s important, therefore, to know what’s coming.
Stage one: The fit interview
Like investment banks recruiting graduates, private equity firms want to assess that you know their company, know their business and have the right skills and experience to become a valuable member of the team.
The first stage is always a test of whether you have the right stuff to fit into the organisation and, as ever, preparation is key. You will always be asked the following three questions in one form or another, says McManus.
a) Why do you want to work for this firm?
Simple, right? Just research the firm, work out their sector expertise, their company culture and what it is that separates them from the competition. Check out recent deals, target companies, and say something that shows a genuine interest in the company you want to work for.
“If you can’t answer this question, which is simply a case of doing your homework, then the private equity firm will make the rest of the interview very uncomfortable,” says McManus. “Follow-up questions include what sectors they work in, a recent deal that excited the interviewee. A good answer can kill the follow-up questions. All the PE firm wants to know is that you’re not wasting their time.”
b) Why do you want to work in private equity?
The key point to remember here is that the PE firm does not care about your career aspirations; this is a buyer’s market, what are you selling? A common answer is something along the lines of why the buy-side is the next logical step in the candidate’s career, how they want to broaden their experience gained in a big bank or consulting firm and other answers that mark you out as a top candidate looking for a new opportunity.
“Summarise your experience in the context of their firm – why are you going to be useful to them?” advises McManus.
You might want to say: “My recent experience focusing on XXX sector has given me a good sense of the investment opportunities available and my valuation and modelling experience ensures I can make sense of the different businesses in this sector. I’d like to apply these skills in a new area of the financial industry.”
A question that’s asked in everything from an investment banking interview to an MBA application, but most people are nonetheless “appalling” at talking about their background in a manner that would interest a PE firm, says McManus. The biggest problem is that because of their investment banking background, they continue to speak like an adviser – promoting the positives of a particular deal and the benefits of an investment – rather than the more “cynical” approach of a buyer, says McManus.
“Learn to speak to speak the language of the buy-side – emphasising the upsides, but also the potential pitfalls of an investment – rather than an adviser. If you can talk the talk, you’re more likely to be considered a fit,” she says.
Stage Two: The skills test
You may have managed to polish up your interview skills, impressed in the first round and made it through to the (very) shortlist, but this is where the nitty gritty ability to do the day-to-day job is assessed. The skills test will usually comprise of two elements – a case study presentation and an hour-long test of your financial modelling skills.
In the case study, candidates are given a certain amount of information about a company and then asked, simply, whether they would invest in it or not. This is, after all, pretty much the day job. A favourite trick of PE firms is to throw in a portfolio company, with weaker candidates often seizing the opportunity to say what a good investment it is.
“You don’t know if it’s a company they wished they’d never bought, so don’t assume you need to be positive,” says McManus. “The key here is to highlight the difference between a good business and a good investment. A poor performing company might be an awful investment, but if the business has potential, it’s up to the PE firm to spot that potential. Take a view, have an opinion even if it’s contrarian – PE firms will not hire sheep.”
The modelling test is only an hour, so it’s never overly-complex. A lot of candidates over-complicate the model and, in a time pressured environment, fail to complete the task – over-stretching yourself within a tight deadline is most people’s downfall, says McManus.
Stage Three: The hob-nobbing
At this point the job is yours to lose – getting through the so-called ‘beer test’/ ‘flight test’ element of the assessment – can those within the firm stand to work with you? Would they happily sit down drinking with you or spend eight hours on a transatlantic flight, or would they rather you were in the baggage compartment?
“We have 25 people working in private equity in London and you spend a lot of time together,” said, Raphael De Botton, managing director at Blackstone. “Therefore, the recruitment process is focused a lot on the cultural fit. We want people who have technical skills, who are proactive and able to go into complex business deals at a time of strategic change, but our recruits have to fit in with the rest of the team.”
You will be taken out for lunch with senior team members, who will assess whether they can trust you to face clients and whether they can work with you. It’s ostensibly an informal occasion, but you need to be on your guard, as saying the wrong thing can undermine all your hard work up to this stage and senior partners can obviously veto any potential hire.
However, this is also your chance to switch from seller to buyer. The PE wants you to work for it at this point, so it will be selling its work environment; you’ll also spend time with someone at a similar level to the role you’re applying to who will give you an idea of the day to day job.
“The final stage is essentially due diligence, but it’s still possible to mess it up,” says McManus
After this it’s all over – over the course of the three interviews you will have most likely met with seven to 10 people within the business, from juniors to partner level as well as HR. “Think of it like a Playstation game – each level leads on to the next until you meet the big boss,” says McManus.
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