Private Equity Recruiting (for Banking Analysts)

Introduction

Private equity recruiting has become an earlier and earlier part of the investment banking analyst experience. While all parties acknowledge it’s silly to recruit recent college graduates one to two years in advance, the larger firms don’t want to let their rivals siphon up all the talent, and a prisoner’s dilemma domino effect ensues.

When I recruited for private equity, the main cycle occurred several weeks before most headhunters (claimed they) thought it would (mid-February), and it’s been moving earlier every year.

The early recruiting frenzy has several effects:

  1. Academic history matters more than it should.
  2. Unequal early staffings can skew recruiting results (over two years this normalizes, but your first couple projects may be the bulk of your pre-recruiting experience).
  3. If you want to recruit in the main cycle, you have to make up your mind and prepare early. No time to stop and smell the roses.

These are the unfortunate facts of private equity recruiting. This article will provide some tips and best practices - passed down from older analysts, and learned the hard way.

Rough Timeline

September - November

  1. Prepare first version of resume for headhunters.
  2. Begin refining “my story.”
  3. Schedule headhunter meetings.

October - December

  1. Headhunter meetings.

November - January

  1. PE firm info sessions / dinners.
  2. A few small firms may try to jump the main process and have smaller rounds of interviews.
  3. Practice for modeling tests.

January - February:

  1. Main recruiting cyle.

Banking + Recruiting?

Banking is a demanding job - tough enough to manage without the stresses of PE recruiting. But the main recruiting cycle is a sprint, not a marathon. You’ll get through it.

Generally speaking, many banks / groups have accepted PE recruiting as a fact of life and try to support their analysts. If you were a summer intern in your current group, you are probably aware of your group’s attitude toward PE recruiting: Do they support it? Is it an open secret? Do the associates or second-year analysts cover for the first-years?

Either way, for your first few months it is best to focus on on the job at hand: being a good analyst. But it is important to get to know the older analysts:

  1. They’re generally good people.
  2. They can help you acclimate to the analyst role; they can tell you who to work for and who to try to avoid, etc.
  3. They probably went through recruiting the year before. They know some of the headhunters and how to prepare.

Tips

  1. It is crucial to make a good impression within your group. Headhunters will call older analysts, associates and VPs and make them force-rank the current crop of analysts.
  2. Many senior bankers have their own relationships with funds, and can reach out on your behalf. Likewise, some funds will call banks directly in order to diligence analysts further along in the recruiting process.
  3. Getting good early staffings can have an outsized impact on your recruiting outcome.

Headhunters

Always keep headhunters’ incentives in mind: headhunters get paid when they successfully place candidates with their client funds (they get paid a lot).

When they meet with you, headhunters are assessing and grading you to determine which client funds they would recommend having you interview with, etc.

First Principles

  1. Headhunter meetings are your first interviews. Do not be fooled otherwise.
  2. Headhunters are not your friends - they want to place you so they get paid.

Tips

  1. Have your story and resume ready before meeting with headhunters. These are your first interviews.
  2. Many headhunters have finance backgrounds and can suss out bullshit instantly. Do not exagerate your deal experience. Do not try to “trick” them.
  3. There are many headhunters, each representing an array of PE and hedge funds. Your first headhunter meeting probably won’t be your best showing. Schedule the ones you care about least, first. Always good to have a few practice runs under your belt before it counts.
  4. If you have genuine, specific interest in one (or a couple) of the headhunter’s clients, tell them. It will show you did your homework, and headhunters know that well-researched, genuine interest translates well with their investor clients (i.e., you have a higher probability to secure an offer + a higher probability you accept = higher probability they get paid from you).

Interviewing

Generally, private equity interviews follow this pattern:

  1. Early interviews (with more junior folks)
  2. Model test / case study
  3. More junior - mid-level interviews
  4. Senior interviews
  5. Exploding offer?

Interviews test the following skills:

  1. Basic financial modeling
    • Model test
    • Paper LBOs
  2. “Thinking like an investor”
    • “What’s a good business?”
    • “What makes a good LBO investment?”
    • “What are your main diligence areas for this business?”
  3. Personableness / “soft skills”
    • “Tell me about yourself.”
    • “Why PE?”
    • “Why [XYZ] fund / [XYZ] investing style?”

First Principles

  1. The modeling test is a way to eliminate candidates. It is a “check-the-box” test – can they do the simple math that is a requirement of this job?
  2. Being personable and having a compelling story can smooth over a couple missed investing trivia questions.

Modeling Test Tips

  1. Although the modeling test is a check-the-box test, when the main recruiting cycle kicks off, you won’t have time to cram. Preparing early and often is key.
  2. Ask older analysts for templates they used to prepare. Study those templates and then build your own.
  3. Many PE firms are lazy and recycle the same modeling test every year! If your group has a copy of their old tests, chances are it’s the same one they’ll be using this year.

I prepared by building a new LBO (from scratch) for a different public company every week (November - January). It sucks to spend 2 hours of every Sunday doing that, but in February the preparation is worth it. Make up the projections and some semi-reasonable financing assumptions – the important part is to master the LBO mechanics.

Our LBO model is a great basic template: Training LBO. If you can rebuild this in 2 hours, you will be prepared for any modeling test.

Interviewing Tips

  1. You know you will get the following 3 questions every time: (1) Tell me about yourself; (2) why PE / investing; (3) why [xyz] fund / investing style. Master these.
  2. Be humble. Your interviewers know you’re essentially a college graduate who’s been sitting in a bank for several months. Express interest and curiosity, but don’t overstate your experience.
  3. If you have to choose between preparing for “soft questions” (e.g., tell me about yourself) and practicing “investment” questions (e.g., how to do bond math), choose the soft questions. They’ll come up every time, and you never know what random investment trivia will be thrown your way. (I’ve seen two many smart analysts fail in interviews, because they spent all their time preparing for investment trivia, and not enough time preparing their “soft” pitches.)

Specific Interview Questions

“Tell me about yourself” / “Your story”

  • Practice this relentlessly. Having a compelling story is probably the most important factor in your success that you can control.
  • 60 - 90 seconds (max). No one wants to listen to you drone on and on. They will ask you questions if they want to hear more about something.
  • This is a narrative, and NOT a recitation of achievement. They have your resume. This is the personal narrative that connects the resume dots, and helps you stand out in their minds when they’re comparing candidates later.
  • Things to include: (i) where you grew up, (ii) why you went to your college, (iii) what you studied in college and why, (iv) how that led you to banking, (v) any other fun facts (e.g., I grew up on a working farm and could drive a tractor before I was 10)
  • Your story should help them understand your journey, and it should end leading into why you’re interested in PE.

“Why investing / private equity”

  • “Because I want to make a lot of money” is not a good enough answer.
  • Ideally ~30 - 45 seconds
  • Have you always been interested in investing? Do you have talking points backing that up (e.g., investing in public markets since I was 10)? If you haven’t always been an investing nerd (that’s ok), what sparked your curiosity? How has banking made you more interested in the investing world?
  • You should touch on why PE vs. other forms of investing - you don’t want them to think: “Ok, he / she loves trading stocks and will just leave for a hedge fund in a couple years.”

“Why [xyz] investing style / fund”

  • This ties into the answer above.
  • For each fund you interview with, you should look up their prior deals and have specific questions. You should understand their investment style and what types of assets they like.
  • This is especially important for non-vanilla funds / strategies (growth equity, distressed investing, specific industry focus, etc.). They know they’re not quite like everyone else, and they want to know why you like that.

Choosing a Fund

For many analysts, the prevailing attitude is: take the most prestigious option you can get. If you have multiple options, you should think carefully about your long-term goals and how the various funds fit with those goals.

Some questions you should think about:

  1. Do you want to go to business school?
    • Which schools do a fund’s associates typically attend?
    • Where did the partners go to business school? (You hope they’ll write your recommendations)
  2. Do you want to avoid business school?
    • Does the firm promote internally without business school? Is this semi-regular or a rare occurrence?
  3. Are you passionate about a particular industry?
    • Can you be guaranteed placement in that vertical / team?
    • Do they have a strong investment track record in that industry?
  4. How has the firm performed (historically and in the latest fund)?
    • Are they going to be able to raise another fund (so that you’re not just performing portfolio maintenance)?

Diligencing PE Firms

They interview you, but you are also interviewing them. Unfortunately, given the short time-span of the main PE recruiting cycle, even if you have multiple options, it can be difficult to make an informed decision.

Some things to look for:

  1. How involved in the recruiting process are the current PE associates? Do they run the process, or do you never even meet them? This can be a good indication of how much responsibility they’re given and what the team dynamic is like. (I saw both extremes and everything in between.)

  2. If the firm sends PE associates to business school and recruits post-MBA associates / VPs, do the pre-MBA associates come back after school? If not, this points to some combination of the following:

    • The PE firm is bad at picking associates who make good long-term team members.
    • The pre-MBA experience is so bad, they don’t want to come back.

  3. Are the men wearing ties / what is the dress code? This probably gives some indication on how laid back (or strict) the culture is.

  4. What types of questions do they focus on? Do they care about getting to know you, or do they focus on solely your knowledge of financial trivia?

These are just some examples. If you pay attention while touring various firms and interviewing, you can pick up clues that may help inform your decision. Speak with older analysts in your group, too.

Good luck.