Investment Banking In The Middle East

“I’m a rising junior seeking a career in finance/consulting. I’ve worked in private wealth management, strategy and corporate finance before and am looking to do banking after graduation.

I noticed you’ve written a lot about the “China angle” and how a lot of readers on your site are going there for finance opportunities.

While it’s definitely a big opportunity, I feel people are overlooking the Middle East. With banks sending a lot of people to Dubai, Abu Dhabi, etc. and the rise in stature of the Middle Eastern financial centers, do you think it’s worth pursuing banking or consulting there?

Do you have any tips for pursuing a career in the Middle East?”

Inquisitor:

I definitely agree with you that the Middle East is an often-overlooked opportunity area. Most Americans are at least somewhat conscious of the rise of China and India, but the Middle East sometimes goes unnoticed.

You’re onto something with your plan to work there - within a few years it could certainly turn into a hot spot.

If you want to work in the Middle East, the best thing you can do to prepare is get a summer internship there or take advantage of any other chance you have to get there.

People often advise aspiring bankers to work in New York first because it makes it easier to transition elsewhere later. This advice is true, to an extent, but you could easily do an internship in Dubai, work in New York full-time at first and then move back later.

I would also recommend contacting alumni who work in or who are from the region and seeing if any of them can point you in the right direction.

Types Of Recruiting Teams

“I’m a rising senior preparing for recruiting in the fall. Do the Investment Banking, Sales & Trading, Equity Capital Market, Debt Capital Markets, Research, and Private Equity divisions of a BB have their own recruiting teams at each school, or do they have a collective team that evaluates candidates?

I may be interested in a few of those areas, and not sure which direction I will go in yet. If I were to apply for both IBD and ECM, would my resume be reviewed by both teams or a joint team? Would it reflect negatively upon me if I apply for both?”

Inquisitor:

I hate to give non-answers, but this one depends entirely on the bank/group/office in question, as well as your school to an extent. Generally banks will send a few different people from across those groups to a school for recruiting/interviewing purposes; sometimes your resume may be filtered into the group they think you’re most suitable for, while other times each group will actually review your resume.

Personally, I only review resumes for those who apply to investment banking - I never look at anyone who’s applying for a different group.

It’s in your best interest to indicate a group preference - if you’re too wishy-washy on the application, the groups may get to talking and realize you don’t know where you want to be.

Even if you don’t know exactly, you should pretend that you do know and focus on one area to maximize your chances.

My Own Resume

“I was wondering, since you’ve written so much about resumes and have your resume review service, is there any chance you would mind sharing your resume on the site? Obviously I would expect you to alter names and numbers of course.

If you can’t do that, could you share a few anonymous resumes that you think are good? I’m starting shortly as a full-time investment banking analyst and want to understand what people consider “good” resumes.”

Inquisitor:

Interesting idea, but I fear that I would have to alter it so much to remain anonymous that it would no longer be worth looking at… more than names and numbers, I would have to change around details like school, activities, interests and previous work experiences and it wouldn’t resemble my own resume when I finished.

Fortunately, I do plan on posting sample “good” resumes once I finish up my investment banking prep service and will make those freely available to everyone.

And who knows, I might just be inspired to post a version of my own resume if enough people want to see it and I temporarily lose my sanity.

Feedback On The Investment Banking Prep Service

Thanks for all the feedback everyone submitted last week on this upcoming prep service/product/whatever you want to call it - I received over 100 responses via the survey and email and still haven’t had time to go through everything.

It seems everyone wants something slightly different, so I will likely offer a combination of the options presented there, with pricing and such to be determined at a later date.

Also, just to be clear - free content and blog posts will continue as well. I recognize many readers want to learn about investment banking but don’t necessarily want to be in investment banking.

My Last Day As An Investment Banker - Thoughts

Today marks my last day at work. It’s strange to be leaving after spending, oh, around 80% of my waking hours in the past 2 years in this office (that might have been 90% but my improved 2nd year hours dropped the average a bit).

I certainly won’t miss all those all-nighters, but I’ll definitely miss all my friends who are sticking around and continuing through next year.

Truthfully, I’m even going to miss the senior bankers around here. Sure, they made my life miserable at times, but looking back on it a lot of what I went through almost seems funny today.

I’m both excited and intimidated over what lies ahead - whatever happens, it’s going to be even more of an adventure than these past 2 years were.

Future Plans

I’ll be traveling over the next few weeks but posting will continue in my absence.

When I get back, expect more news on my upcoming service(s) and some other projects I’ve been working on in the background.

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Venture Capital Internships

“I’ve been looking for investment banking summer internships this year but missed the recruiting season and was not able to find anything at boutiques or small firms around here.

I may get an offer to intern at a venture capital firm focused on renewable energy, via a family connection. Given that this is outside New York, how would a summer at a VC look compared to the typical i-banking internship?”

Inquisitor:

This is a great question and brings up a point that I have not addressed on the site (until now, that is).

A lot of undergraduates are interested in pursuing venture capital after (or before) investment banking. In theory, it sounds like a dream job - flying around in jets, meeting entrepreneurs and seeking out the next YouTube and then making hundreds of millions of dollars when Google swoops in and acquires your company for $1.6 billion.

The problem: that is not what working at a VC firm as a junior person is like. Instead, you’ll often be somewhere between an assistant and an investment banking analyst: you will support the Partners and handle administrative tasks. Sure, the hours and lifestyle will be much better, but you might end up doing even less meaningful work.

Case in point: I knew a girl who interned at one of the top VC firms a few years ago and spent most of her summer managing the Partner’s calendar, taking care of errands and traveling throughout the country. While the travel part may sound appealing, you don’t develop skills like financial modeling, sales, or even valuable relationships by being someone’s assistant.

As Guy Kawasaki pointed out on his blog, you want venture capital to be your last job - not your first (or second).

One exception: if you go to a later-stage VC or growth equity firm, those are closer to banking and private equity and will be looked upon more favorably/give you more options.

If this is your only option for the summer, sure, go ahead and do it - just don’t expect recruiters to treat a VC internship as “on par” with a banking one, because it is usually not even close.

On the New York issue, it doesn’t matter much for an internship - location is more relevant for the purposes of networking and deciding where you go next.

Private Equity In China

“I’ve been offered an internship at a small private equity firm in China. The team is very small (only 5 including me) and they focus on small and mid-sized businesses.

They said responsibilities will be similar to PE internships in the US - site visits, due diligence, financial modeling, meeting with owners, etc.

I have no previous finance experience, and would likely be looking for a job in the US once this internship is complete. Will this help me in terms of transitioning to a larger firm in the US?”

Inquisitor:

Internships abroad tend to be more “random” than ones in the US. I know because I interned abroad before and many friends have done the same.

So you usually don’t know exactly what you’ll be doing or learning until you’re already midway through the internship. It’s definitely more of a gamble than staying domestic and working at an established firm.

That said, I would recommend you go through with it and accept the internship anyway:

• You have no finance experience, so it will be quite difficult to break in unless you go this route.
• It’s just an internship and it can be spun any way you want during recruiting - expectations tend to be lower when describing internships vs. full-time jobs.
• There is the whole “China angle” aspect these days, which US firms will like.

Merely having the name “private equity” on your resume makes a huge difference and will get you access to recruiters and larger private equity firms, regardless of how much you actually learned.

Setting Up Firm Visits And Informational Interviews

“Could you explain the process of setting up a company/firm visit, and what I should expect? I’m living and interning abroad this summer and want to take advantage of the opportunity to meet with local firms here. I also wouldn’t mind working abroad in general.”

Inquisitor:

Expectations are not set too high when visiting firms, especially when you’re outside the US. It’s mostly about asking intelligent questions, doing some research beforehand and showing interest in what they do.

It’s about not screwing up more than doing anything perfectly (see: summer internships and proving yourself when you first start).

In terms of setting up a firm visit, I would just ask for it directly - “I’m very interested in learning more about your firm and will be in XX area on XX/XX - XX/XX - I wanted to see how we might set up an in-person informational meeting so that I could learn more.”

I definitely think it helps with recruiting, and more so at smaller companies than larger ones - very few people take the initiative to do this, so you can stand out with something relatively simple.

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I have some big plans for Mergers & Inquisitions coming up over the summer and into the fall (amazing what an extra 80-100 hours of free time each week allows you to do), so stay tuned for announcements soon.  In the meantime, let’s proceed to this week’s edition of reader Q&A.

The Age Factor And Part-Time MBA Programs: How Old Is “Too Old?”

“I’m in my early 30’s and about to start a part-time MBA program at a top 20 school. I’ll be in my mid-30’s when I graduate.  Since I’m making a career change and will be above the median age for new Associates, I’m worried about actually getting into investment banking.

How much does age factor into recruitment? Am I going to be at a severe disadvantage?”

Inquisitor:

Make no mistake: age definitely plays a factor in recruiting.  Banks, for example, are unlikely to hire Analysts older than their late 20’s (anyone older than that would never put up with staying in the office until 4 AM and waking up at 6 AM); if you’re over 40 it’s going to be hard to break in no matter how senior you are.

However, I don’t think you’ll be “too old” to get into banking.   Most Associates are a bit younger, but not by enough to put you at a disadvantage.

The bigger problem will be the part-time MBA program - banks recruit mostly from full-time MBAs, and in general the part-time programs are not regarded in the same light. I would do some research and assess the recruiting environment at your school; if there isn’t any recruiting, either consider a full-time MBA program or get started networking with alumni and friends in the industry right away.

Finance Internships Abroad vs. Staying In The US

“I’ve accepted an internship at a well-known European bank. The internship is in London and seems to be very similar to US internships; as an added benefit, I’ll be getting a lot of great contacts in Europe.

What would you think when looking at a resume of someone with my background? I do want to work full-time in New York since I was born and raised in the US - how would US banks react to an internship in Europe? Would it be positive since it stands out from other people or negative since London is much different from New York?”

Inquisitor:

Working abroad anywhere is a positive, especially in today’s world.  Over time experience outside the US will continue to grow in importance, especially since the US is no longer the center of the world (see: investment bankers flocking to Dubai).

Even if the European bank is less “prestigious” (I hate that word) than its US-based counterparts, the internship itself will still be a huge positive and won’t hinder you from working in New York, especially since you’re from there originally.

I might have mentioned this before, but my experience abroad is one of the reasons I got into investment banking in the first place - it made me stand out compared to everyone else applying for the same spots.

Fall Analyst Recruiting At The Bulge Brackets

“I graduated from a top 20 university last year and have been working at a well-known (but not M/B/B) consulting firm for the last several years. I really want to switch into investment banking, but I know it will be hard given the current hiring market.

I’ve been thinking about trying to squeeze into the fall analyst recruiting cycle and interview alongside undergraduate candidates - do you think this will work? And do you think bulge bracket banks will even be recruiting analysts this year?

Inquisitor:

That seems to be the question of the hour - well, that and 2008 bonuses (I will write about my views next week).

Banks will almost certainly recruit in the fall, but I doubt that it’s going to improve much compared to 2007 - it will either stay the same or get worse. I hate to sound depressing, but people are getting laid off left and right and business is… slow… really slow. Most of my work lately has been pitching deals that will never happen.

Putting aside market concerns, many consultants do transition into investment banking and private equity. However, given your circumstances it’s more realistic to consider 1 of 2 options:

1. Go to a boutique or middle-market rather than aiming strictly for bulge bracket firms - it is extremely tough to come in with a non-traditional background in a bear market.
2. Go to business school and start banking as an Associate. By then the economy should have recovered (or else we’re all in a lot of trouble).

I’m not sure what you mean by “interviewing alongside undergraduate candidates” - you can’t do this since lateral hiring is a completely different process. If I were you, I would start networking and contacting friends in the industry right now and take advantage of any unexpected departures in the summer season - Analysts sometimes leave after their first year and you take advantage of this to land a job.

More Investment Banking/Finance Summer Internships

In other news, some other sites out there picked up my Summer Intern Success Guide feature on Tuesday and I saw many great contributions. Here are a few sites that featured my guide and some of my favorite tips:

Prince Of Wall Street - Advice for Summer Analysts Hitting the Desks

Besides linking to several of my posts in this post (always a good way to get my attention :), The Prince also goes into a few tips of his own - I think it’s a great idea to find the best analyst.  There is a huge difference between the top analysts and those who don’t know much, and befriending the smartest guy in the room is a great way to get ahead (as long as we’re not talking about Enron).

I also like his advice to develop relationships with your staffer and the higher-ups as well as with the Analysts - Analysts often decide who gets offers and who doesn’t at the end of the summer, so you need to heed this one.

Finally, working out and eating healthy food are critical - I’ll write a few more articles on how to stay fit as an investment banker since there’s a lot of interest in this topic.

Financial Rounds - Some Quick Tips For Summer Internships (Investment Banking and Otherwise)

Besides complimenting my name (another good way to get my attention :), Financial Rounds also offers up some other useful tips for summer interns.

I especially like his tip to avoid badmouthing the competition; I’ve seen this happen with summer interns and it’s never a pretty sight.  As I’ve mentioned before, summer intern competition is not nearly as intense as you probably think, so there’s no reason to badmouth others.

And never try to suck up to someone above an Analyst - we notice when you do this and will always find some way to screw you over, even if you’re not aware of it.

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Diluted Shares Outstanding In A DCF

“I’m confused about how shares outstanding work in a DCF.  When calculating the fully diluted shares outstanding using the Treasury Stock Method, we need the current share price.  But shouldn’t we use the “intrinsic share price” obtained from the DCF to calculate diluted shares?

I realize this would create a circular reference because the DCF depends on the diluted shares outstanding, but the diluted shares outstanding depend on the share price in the DCF.

Can you clarify?”

Inquisitor:

You’re talking about 2 separate issues here - what a company actually costs to acquire and what a DCF tells you it’s worth.

When you calculate a company’s fully diluted shares at a given share price, you take the basic shares outstanding and factor in the dilution from options (and warrants/convertibles) at that share price.  Then you multiply that number by the share price to get the company’s fully dluted market cap.

A DCF, or any other valuation technique like public comps or M&A comps, is used to tell you what a company should be worth, not what it would actually cost to acquire it today.

In other words, you would never use the implied per share value from a DCF to determine how much it would cost to buy a company.

If you’re doing a DCF the correct way, you do get a circular reference because the per-share price output depends on the fully diluted share count - but the fully diluted share count depends on the per-share price.

To do this correctly, calculate the fully diluted shares using the Treasury Stock Method and use the per-share price in the DCF as the input for fully diluted shares, then use the fully diluted shares output as input in the DCF.  Make sure iterations are turned on in Excel (Alt T + O + C + Alt M + Alt I) and let it iterate (F9) to calculate the correct number.

Career Switch: IT To Investment Banking

“I am looking for advice on how to proceed with my career, and am hoping you might point me in the right direction.  I am currently working in the IT department of a top 5 investment bank after having graduated from a top 10 university with a Computer Science degree 2 years ago.

The IT role hasn’t met my expectations at all and I have decided I would rather go into an investment banking front-office role.

For someone with my background, can I realistically switch over?  Would recruiters look favorably upon my experience?”

Inquisitor:

Generally it is quite difficult to transition from a back-office role (IT, for example) into a front-office role at an investment bank.  Since the firms are so large you tend to get pigeonholed into one area, and no matter how much interest/aptitude you have for front-office work, your requests to transfer will usually fall on deaf ears.

As I wrote in my article on how to get a finance job with an engineering background, there are typically 2 viable options:

1. Take advantage of your quantitative background and go to a hedge fund.  They like recruiting Computer Science graduates and other quantitative majors, and your experience at a bank gives you an edge here. They understand that if you’re smart and quantitative you can pick up anything finance-related along the way.
2. Go to an MBA program and come into banking as an Associate.  The only issue is that with just the IT role at the bank on your resume, you will probably need more experience to get into business school/get into a bank afterward.

I don’t mean to discourage you, but from what I’ve seen it is just incredibly difficult to “lateral” into banking from a field that isn’t closely related (e.g. consulting).  Going outside banking to the hedge fund world or going back for an MBA are higher-probability ways of getting in, especially in a bear market.

Corporate Finance At A Fortune 500 Company

“I was wondering what you thought of Corporate Finance training programs at Fortune 500 companies, such as GE’s Financial Management Program.  Are these at all useful for breaking into investment banking?  If I have the opportunity to do something similar this summer, should I take it?”

Inquisitor:

Corporate Finance at a large company can be one path you take to get into banking, but I would recommend only doing a summer internship rather than a full 2-year program if you do not want to ultimately work at a Fortune 500 company.

Although you do learn lot and will gain a useful skillset, recruiters do not view these programs in the same way they would view experience at an investment bank, private equity firm or hedge fund.  Those 3 are all seen as more “rigorous” - in other words you work a lot more, (perhaps) learn more finance and you’ll be better-prepared for the non-existent work/life balance of investment banking.

If you don’t have or can’t get an internship in one of those 3, it is definitely better to do Corporate Finance at a Fortune 500 than to do something in a completely unrelated field.

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Law School Student To Finance

“I just read your article on breaking into finance from law and had a question on my own situation. I am a 2L at regional law school and am in the top third of my class. I’ve written published law review articles on M&A and corporate finance, and have become more interested in finance over my 2 years here.

I know you suggested doing Corporate Law as a transition into finance, but since I am attending a smaller school, this is not really an option. I do have some extracurricular activities related to finance, but no formal jobs or internships.

What can I do to solidify my resume to target not only banks but any type of finance job? Would a CFA or other certifications help me at all?”

Inquisitor:

Certifications such as the CFA would indeed help your case, but they’re huge time commitments and your efforts might be better spent elsewhere. So think through it carefully first.

Ultimately, work experience is the most relevant item on your resume and the key predictor of whether we’ll pick someone for an interview. A CFA would never make me say, “Ok, this person should definitely get an interview.”

Anything extracurricular related to finance/business is also good, but again it suffers from the same problem: work experience is what really counts.

I realize this is a circular answer: to get finance experience, you need finance experience first. So what do you do?

• Start small. Even a relevant part-time job or internship during the school year is a better use of time than CFA study, in my view.
• Go local. Regional and local firms often struggle to find the right people - even if your qualifications don’t exactly match, enthusiasm can go a long way.
• Offer to work for free. This may sound crazy, but any amount of money you get from an internship is not going to be significant in the long run. Focus on future benefits rather than immediate gains.

In your case, I would also strongly recommend networking with fellow authors and law review publishers and seeing if any of them have leads for Corporate/Securities Law jobs or internships.

How Summer Analysts Are Judged

“I have a summer internship coming up at a bulge bracket bank. I understand that most summer analysts receive offers, but with the tough market and hiring slowing down everywhere, I’m concerned about actually getting one this year.

In your experience, are summer analysts awarded offers more based on individual performance or on how they compare to their peers? I’m not sure how worried I should be about the competition.”

Inquisitor:

The short answer is that personal performance is most important. People tend to greatly overestimate just how much competition there is among summer analysts looking for offers, just like they incorrectly assume that full-time Analysts are also all killing each other to get top bonuses.

For Summer Analysts the logic is very simple: most interns perform quite poorly and have no chance of coming back anyway.

Some summer interns just don’t know what they’re getting into; others realize they don’t like it a few weeks in and just give up.

Your #1 priority during your internship should be performing well, getting people to like you and getting an offer (more on how to dominate your investment banking summer internship).

One caveat: At some groups/firms, it is indeed harder to get full-time offers and there is more competition among interns. Goldman, for example, is famous for giving out fewer full-time offers to summer interns compared to other banks.

But overall you should be most concerned about how well you do, not how well you do vs. others.

Turning Down Summer Offers: Trading Up

“I got a summer offer at a boutique bank and liked everyone I met there. The offer is a verbal one so I’m a bit nervous about accepting.

Recently I’ve been getting calls from larger firms that I had applied to before, so I’ve been thinking more seriously about trying to go to one of those. They would pay better and give me better opportunities for full-time recruiting in the fall.

Although it would look bad “reneging” on my boutique offer, the bank never even gave me a formal, written offer in the first place - so I’m wondering if telling them “no” and moving to one of the larger firms would be a good idea, or if it would burn too many bridges.”

Inquisitor:

I don’t think there’s much harm in reneging a verbal offer and going somewhere else if you think it’s more compelling and like the people more. “Burning bridges” should not be a major concern, especially since this is for an internship without a formal offer letter.

However, moves like boutique to middle-market don’t help much, whether it’s for lateral hiring or summer internships. So I would only do this if the other options include bulge brackets.

If you do decide to make the move, make sure you have a signed, written offer in hand from the other places - do not rely on verbal offers.

And if you turn down your verbal offer from the boutique, don’t tell them it was due to greater pay or prestige - I would instead make up an excuse around location or another non-sensitive issue so they don’t take it the wrong way.

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-Failsafe Interviewing Techniques For Investment Bankers, The All Nighter

Continuing this week’s theme of “assessing strategic alternatives for your career,” or “how to survive and interview for other jobs, even in a bad market,” I wanted to cover one other question I’ve seen lately: how to find time to interview with 2 full-time jobs (welcome to the life of the investment banking analyst).

Even if you’re not in investment banking, but rather another professional field like accounting, consulting, or corporate law, finding time and making up the appropriate excuses will always be an issue.

While it’s easy (easier perhaps) to do phone interviews, you’ll never get an actual offer unless you do at least a few rounds of in-person interviews, and sometimes many more than that.

There are 2 approaches you can take when it comes to being out of the office interviewing for other jobs: deception and honesty.

Deception

The classic example here is the doctor appointment.  I’ve used this one before - probably too many times in fact.

Dentist is a little better, but still rather conventional.

“Family emergencies” can also work, but it’s even more unbelievable to have 5 family emergencies in one week than to have 5 doctor visits, so be careful with your usage there.

The main problem with using this strategy is that eventually you run out of excuses or you have 10 “doctor appointments” in one week, so it stops being believable.

And if you want to get a little more exotic, don’t even think about it.  Saying your pet giraffe needs to go to the vet is a sure sign you have multiple interviews coming up.  Variations on the ordinary are far better.

In general, though, I would recommend making up excuses in only 2 situations:

1. It’s very early into your time on the job - if you just started at an investment bank in the summer, think January or February - and you are even more on top of recruiting than the average person.  You don’t solicit meetings; the headhunters come to you.
2. You work at a firm/office where talk of recruiting is taboo and no one is open about it.  Or you’re in an industry where it’s not expected that people move on after a few years (surprisingly, there are other industries out there besides finance).

A lot of investment banking analysts think deception is always the best route, but I think this line of thinking is somewhat flawed.  If you just have 1 or 2 interviews, sure, it’s easy to write them off as dentist appointments, weddings or broken sinks.

But when you actually find a lead worth pursuing and you have multiple rounds of interviews, it’s pretty obvious to everyone what you’re doing.  And even if you don’t say anything directly, they’ll put the pieces together.

If you’re not in investment banking but are trying to break in from another field like accounting or consulting, you will probably have to use some made-up excuses to avoid raising red flags.

My recommendation: rotate among different excuses or come up with a series of events around one excuse.  If you go the family emergency route, you can always string together a more detailed account and relay the basics to anyone who asks.

If you’re not in New York or London and you actually drive to work, car accidents (real or imagined) can be another good source of multiple absences within a week or two.  You have to go to the hospital… go to the doctor for a follow-up exam… get your car fixed… find out it can’t be fixed… locate a new car.

It’s a gold mine.

Honesty

Honesty can be the best policy here - as long as your firm and office are reasonable.  I was upfront when I went to interview elsewhere and specifically told everyone on my team what I was doing (no, not where I was interviewing, just that I would be out for “private equity interviews“).

No one ever made an issue out of it.  The most I ever got was, “Ok, make sure someone else is covering your deals.”

(Forget about “good luck.”  This is finance.)

There are some offices where interviewing (or interviewing very frequently) is looked down upon; this actually happens more at boutiques and smaller firms than at bulge brackets, where most Analysts do in fact move on after 2 years.

Again, if you’re not an investment banking analyst, honesty may not in fact be the best policy.  Friends switching into private equity or banking from related fields like equity research or accounting have had to jump through some crazy hoops to get in their interviews without arousing suspicion.

Telling Co-Workers: Trust No One

If you are going the “deception” route, you need to be 100% committed to it.  You may think that telling fellow Analysts will be fine… that no one would leak what you’re actually doing.

But you would be wrong.

Somehow, it always gets out.  I remember once I had people from a completely different office asking me about my trip when I got back.  I had only told a few trusted co-workers so I was pretty surprised at first.

And then I realized that word about what you’re doing always leaks if even one person other than you knows.

So if you do have to be confidential for whatever reason, pretend it’s the mid-90’s and the X-Files is still the best show out there and trust no one.

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“A recruitment consultant.  A headhunter.  Are you free to speak for a few moments?”

A headhunter! Wow. Ok. Sure you have time to speak!

“Um, er… yes” you mumble in a whispery voice as you stand up and walk away to find a little privacy. Like it isn’t suspicious enough that an unknown caller rings and after they introduce themselves you get all secretive and hide, but you obviously don’t realize this as it’s your FIRST HEADHUNTER CALL!!!!!

“Um, er… yes… I can speak now”

“Great,” says Rebecca, “Mike, I’m calling because you’ve been recommended to me and I would like to see if you’ll be interested in coming in to see a private equity firm for an interview.”

-The Kruelberg Kretin Saga - Episode VI: The Headhunter Call, The All-Nighter

With everyone on Wall Street getting fired and those who haven’t been fired looking at other opportunities, I’ve seen lots of discussion lately around headhunters.

There are many misconceptions out there about what headhunters actually do, how they get paid (hint: by the firms they work for), and who they work for (hint: not you).

I know there are some Mergers & Inquisitions subscribers who work at well-known financial services recruiting firms, so I’ll try to write this post without stepping on anyone’s toes too much.

What Headhunters Do

You might recall back when I explained what investment bankers actually do that I likened us all to Ari Gold.  We don’t create; we’re not there for the long-term; we just sell.

But if there’s anyone more deserving of the “Ari Gold” title than investment bankers, it’s headhunters.

Recruiters are hired by investment banks, private equity firms and hedge funds to find potential candidates for hire.  A lot of junior investment bankers get this wrong and think that the recruiter works for them.

I’ve seen questions like “Should I get a headhunter on retainer?” asked on forums and via email.

But unless you’re willing to pay them 20% of your base salary upon placement (what the firm retaining the headhunter typically pays), you will never have a headhunter “on retainer” so you might want to forget about that one.

Since they are paid on commission and the firm that retains them pays them, their loyalty is to the firm - not to you.

This is not necessarily a bad thing, but you should keep it in mind when making decisions about where to go next.

The Recruiting Process

Generally the headhunter either contacts you directly by phone or email and introduces himself/herself, then assesses your interest in the opportunities he/she has available.

If you can do so, I would strongly recommend meeting in person so you can present your “story” and so they can do a better job bringing you the appropriate jobs.  Meeting in person can also help to overcome a weaker finance background or a lesser “brand name.”

After that, they will pass your resume onto firms that hire them and will effectively act as the first screen in the recruiting process.

After your first interview, the role of the headhunter varies depending on which firm and which recruiter you’re dealing with.  Sometimes they will back off and let you continue discussions on your own, and other times they will talk to both sides throughout the entire process and try to make a “deal” happen.

Why They’re So Prevalent In Financial Services

Recruiters exist in every field, but they’re most prevalent and most influential in financial services for 2 reasons:

1. The highest salaries of any industry out there.  And since headhunters get paid based on base salary, it doesn’t matter that hourly wages might only be marginally better than those of McDonald’s. Even junior-level employees make over $100,000, and mid-level hires will get between $500,000 and $1,000,000.  Try finding that in manufacturing.
2. Incredibly high turnover at all levels.  Just look at what happened to UBS LA last year with Moelis’ departure.  Out of all the Analysts I started with 2 years ago, only around 10% remain in their original positions.  Some have switched firms multiple times in the past 2 years.

If you get paid a percentage of base salary whenever people switch firms and you work in the industry with the highest salaries and highest turnover rates, that translates into a lot of money for those who facilitate the moves - the headhunters.

Also, the world of finance is very small, both in terms of number of major firms and number of employees - even the largest private equity firms have only a few hundred employees.  Just look at Blackstone’s latest 10-K:

“As of December 31, 2007, we employed approximately 1,020 people, including our 65 senior managing directors and approximately 395 other investment and advisory professionals.”

Less than 500 “investment professionals” at the largest and most well-known PE firm out there.

Thus it’s easy for a few well-known recruiting firms to “own” all the relationships with buyside institutions and be responsible for all their new hires - you have an industry with high turnover rates and high salaries but very few people.

This would be much more difficult in a field like technology, where there are tens of thousands of employees at brand-name firms.

So, Should You Use Them?

Almost certainly.  In fact, if you ever want to work at a private equity firm or hedge fund, you don’t have much choice in the matter.

Since the firms are so small, they almost have to rely on headhunters to find candidates.  No matter how well-connected the investors are, you’ll never have a very wide reach within incoming investment banking analysts with only 10 employees.

You should definitely reach out to firms you’re interested in and see what develops as well.  But you probably won’t know people at every firm you might want to work at.

And that’s where headhunters come in: they provide the introductions that get you in the door and alert you to opportunities you might not otherwise know about.

I’ve had friends who have gotten interviews via connections and networking, without going through headhunters.  But very few have actually received offers at legitimate firms without going through them.

Buyer Beware

As I alluded to above, there are a few points to watch out for when doing your recruiting through headhunters.

Introductions, Not Decisions

Never rely on a recruiter to make a decision on whether or not to accept an offer.  As you can imagine, they will almost always urge you to accept it.  Unless there’s something else that would generate a higher commission.

When I was recruiting last year I had several opportunities that I wasn’t crazy about, but were there for the taking if I wanted them.  Needless to say, the recruiters I dealt with pressed me to take one of these even though I just wasn’t enthusiastic about them.

Recruiters are great for initial introductions and availing yourself of new opportunities, but do not fall into the trap of letting headhunters “sell” you on certain positions.  You should do your own diligence when interviewing and decide for yourself what makes sense.

The Tough Market

As you might have noticed if you’ve been alive lately, the market has completely tanked in the last year and hiring has slowed down everywhere.  In case you missed it, Bear Stearns even collapsed. So anyone looking to get into finance is suffering a lot - but guess who else is going through hard times?

That’s right, the headhunters.  When hiring slows down and the number of people being laid off exceeds the number hopping between firms, headhunters lose their main source of revenue.

So you have to be even more careful these days with how you approach the recruiting process.  When hiring slows down, headhunters will be even more persistent in getting you to accept offers that may or may not be right for you.

Coming From Non-Bulge-Bracket Banks

Some headhunters will ignore you or pay less attention to you if you’re not from a bulge bracket bank.  It’s just a matter of return on time for them - they are more likely to place candidates who come from “better” names, so that’s where they spend most of their time and energy.

Sometimes you can get around this by making a great impression during your interviews.  But from what I’ve seen, this is rather difficult and you’ll be at a disadvantage no matter what you do.

The solution here is to either network and contact firms directly, or to spend your time with headhunters who do focus on smaller firms.

Closing Thoughts

If you want to work in finance for the long-term, you’re going to have to work with headhunters, regardless of whether you’re jumping between firms or decide to start your own one day and need to find employees.

It’s fine to rely on headhunters for sourcing - either finding opportunities or employees that you would not have otherwise known about - they are quite good at this, and you probably should use them for sourcing.

Just don’t rely on them to make decisions for you.

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Elite Boutiques

“I had multiple full-time bulge bracket offers but instead opted to go to a recently founded “elite” boutique with a very well-known founder. I thought the experience, exposure and overall environment would be much better.

I had assumed that my exit opportunities would be at least as good as those of most bulge bracket analysts, given the prestige and selectivity of this firm. However, after reading about how well-recruited bulge bracket analysts are, I found myself wondering whether this will work out as I had initially thought.

Moelis hasn’t even graduated its first analyst class yet, and some of the other newly founded boutiques have only had a few years of analysts in their ranks. Given the very “young” status of my firm, will my access to recruiters, private equity firms and hedge funds be as good as I had initially thought?”

Inquisitor:

First, I should clarify one point here: back when I wrote my article on boutiques vs. bulge brackets, I was referring to regional boutiques and small firms that are not widely known.

Places like Lazard and Evercore, though technically “boutiques,” are a completely different ball game and you would get nearly the same access to recruiters there as you would at bulge brackets.

As for your own situation, it’s hard to say since your firm is new and doesn’t have a track record. I would guess that your recruiter access will probably be better than it would be at a middle-market or regional boutique, but not as good as what you would get at a bulge bracket or “prestigious” boutique.

If I were in your situation I would not even rely on recruiters. Since the firm is smaller and the founders are widely known, I would leverage their connections and have them make personal introductions. That will be a much more powerful way to get private equity interviews and get in front of other buyside firms.

Moving To The Buyside Early

“One thing you haven’t talked about in detail on the site is moving to private equity or hedge funds early. You mention briefly that you can/should move to buyside after a year if you know that this is where you want to be, but you don’t say how to go about it, if it is realistic, and what downsides there are. Is it worth applying to large-cap private equity firm after a year on the job or do you just not have a chance?”

Inquisitor:

While it’s possible to move to a large private equity firm after a year in banking, it’s not exactly easy, especially with current market conditions. I had a few friends who did this; the main downside is that you won’t work less at these places (you might actually work more, believe it or not).

If you like private equity more than investment banking, that’s one thing, but you shouldn’t jump over to private equity after a year-long analyst stint because you want better hours - you won’t get them.

If your goal is to work in finance while working less, it’s more rational to go to a hedge fund after a year. It’s also much easier to make this sort of transition, as hedge funds tend to be less structured in recruiting; as an added benefit, you also work a lot less since you’re only there when the markets are open.

“Reputation damage,” or looking bad because you leave a year early, is much less of a concern than you probably think. People hop around so much on Wall Street and turnover is so high that no one is going to care much if you do this.

You probably can’t get a recommendation or reference from your bank if you leave early, but this type of move is not going to ruin your career or anything.

How To Dress For Success As A Summer Intern

“Help! I have a bulge bracket internship coming up and I don’t know what to wear! How many suits should I buy? Is 10 enough?! Should I buy 20?

Is spending $10,000 on clothes enough or should I allot $20,000? How many shoes/pants/shirts do I need?”

Inquisitor:

Summer intern attire seems to be a hot topic (in that I’ve received multiple emails/messages similar to the above over the past week), so before the summer starts I will write a full-length post on this topic.

For now, though, let’s get the basics out of the way.

DO NOT SPEND $10,000 ON CLOTHES FOR A SUMMER INTERNSHIP.

You shouldn’t even spend that much on clothes for a full-time job unless it’s absolutely required.

You don’t need 10 suits, let alone 20. In my experience you don’t even need to wear a suit at most banks, at least as an intern.

Even if you do need to wear a suit each day, 2 or 3 is probably enough. And if you don’t need to wear suits every day, 1 will suffice.

I would suggest enough shirts to last 1-2 weeks and maybe a few pairs of pants. 2-3 pairs of shoes is probably fine. Keep in mind that 1) you will not have a ton of time for laundry/dry cleaning and 2) you don’t actually need a new suit/new pants /new shoes for each day of the week.

I know some people may disagree with me, but I would recommend going to outlets (there are a bunch in the NYC area) or buying clothes on sale to save money - do not spend hundreds of dollars on a single shirt, or even $100 on a single shirt.

Why?

1. Fashion matters less in banking than most people think. Yes, you have to look presentable, but you don’t need to go out and buy a $5,000 suit to get a full-time offer. In fact people might make fun of you for doing this.
2. This is just a summer internship and you don’t even know whether you want to be a full-time banker yet. Why spend $10,000 on clothes that you don’t end up wearing ever again?

I can offer these suggestions because I’ve overspent on clothes for both internships and my full-time job and looking back on it now, wish I hadn’t spent so much.

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Every week I get questions like the one above. And my reply is usually the same: don’t bother. In most cases, lateraling is simply a waste of time and effort. Around this time of year, though, young investment banking analysts everywhere think about making the move.

Bulge Bracket To Bulge Bracket

This is what people are usually thinking of, and it’s almost always wasted effort. It doesn’t make much of a difference whether you’re at Morgan Stanley or JPMorgan; you’ll have access to the same set of recruiters at any bulge bracket.

You could argue that some groups/offices are “better” (like the former UBS LA) and that it’s therefore better to work for the more “prestigious” offices, but it’s still a lot of effort to switch banks for a marginal gain if you’re going from large bank to large bank.

Reasons To Make The Move

If you can’t stand your investment banking group and want nothing more than to end your misery in a violent way every morning when you wake up, then you might have an actual good reason to make a lateral move to another bank.

Even in this scenario, though, you should confirm there’s nothing you can do to improve your situation, such as switching teams or groups, before you decide to swing through the jungle of finance to another bank.

Another reason might be if your bank is collapsing, or your group is collapsing and everyone else is switching banks anyway; in that case you don’t really have any choice.

Issues To Consider First

If you make a lateral move you’ll have to start over at another bank, both literally and figuratively.

Depending on the banks involved, you may be forced to start over as a 1st year Analyst. This “demotion” is more common going from a smaller bank to a larger bank, but the real issue is not the demotion - it’s the loss of time in the recruiting process.

Since private equity firms and hedge funds conduct interviews a year in advance of start dates, you will have to stay in banking for 3 years rather than 2 if you switch to another bank. If you’re a masochist you might want this or you might be fine with it, but most people making the switch don’t realize this and are horrified when it hits them.

In addition to the harm done in terms of recruiting, you’ll also have to build “mind share” with senior bankers once again and prove yourself capable so that you work on deals rather than pitchbooks.

Boutique Or Middle Market To Bulge Bracket

This is typically the only lateral move that makes sense. While you can definitely get good experience at a smaller bank, you will have better access to recruiters and exit opportunities at bulge brackets.

So if you ended up at a boutique or middle market firm due to economic conditions, because you came into the recruiting process late, or because you made a career change long after graduation, going to a bulge bracket may be a good move.

Just make sure you are certain you want to stay in finance for the long-term. Otherwise, it’s once again a waste of time/effort because having Goldman Sachs on your resume vs. Piper Jaffray isn’t going to do much for you if you move back home to help out with the family farm business.

But You Should Still Think Twice

Even if you’re 100% convinced that you should move to another investment bank, I would still urge you to think twice before you do it. Make sure all of the following are true before jumping over to the other side:

• You are willing to be an investment banking analyst for 3 years rather than the standard 2.
• You are 100% certain you want to stay in finance for at least another 10 years.
• If you have a team conflict or can’t stand your current group, there’s nothing that can be done to remedy that at your current bank.

Be Wary Of Headhunters

Recruiters will always be looking to make lateral moves happen because they make a commission if they get you to move somewhere else.

So if they’ve told you that the other group you’re considering moving to has Aeron chairs made of gold, exit opportunities beyond your wildest expectations, and yes, even a daily allowance for not only meals but also models and bottles, you should be careful.

You’re probably being sold.

Sure, if you are interested in moving anyway and have some good recruiter contacts who can make it happen, go ahead and use them. But if they’re pitching you on moving from Goldman to Morgan or on moving from Gleacher to Revolution Partners, there’s probably something you don’t know.

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Thank you very much for your recent application to the Texas-Pacific Group. Your resume and glowing recommendation from your MD were both somewhat impressive. We applaud your efforts to transition from Banking into Private Equity, it is definitely the right move right now. We were considering extending you an offer, actually, but upon review of the quiz you inadvertently submitted to for the New York Post, we regret to inform you that we will be unable to offer you a position at our firm.

Please note that you did score an 87%, which is nothing to be ashamed of. It turns out to a B+ with our generous scaling, and you know what they say—at least you won’t be lonely at the fat part of the bell curve. We only take A’s though. Have you considered a position at Hellman & Friedman?”

-Only 87% Tool, The Leveraged Sellout

Ah, private equity.  The promised land.  What you slave away for as a banker: the chance to become the next Steve Schwarzman.  But unless you have an inside connection with Steve himself, you’ll have to go through a few interviews to get to paradise.

The Format Of Private Equity Interviews

They tend to be very similar to investment banking interviews - generally a phone screen or initial in-person screening interview, followed by a “superday” where you meet with a good portion of the Associates, Principals and Partners at the firm.

The difference is that the interview process goes beyond that - you can have multiple interviews with the same people, and you usually have to do some sort of Case Study, either in advance or on the spot, which you then present to a group at the firm.

Beyond just the Case Study, you will also typically be tested on Leveraged Buyout modeling, either on the spot at your interview or as part of the Case Study.

You should also keep in mind that 99% of PE firms are smaller than investment banks and do not need nearly as many people.  Thus they can afford to be much more selective about new hires.  Banks, by contrast, will tend to be less disciplined with recruitment.

Private Equity Interview Questions

Private Equity Firms care about two points when interviewing you:

1. Your background and “fit” with the firm, group and industry.
2. Your deal experience.

In addition, there may also be some rudimentary technical questions in the “screening” round just to verify that you actually know enough to do the job.  If, for example, you can’t calculate Total Enterprise Value, then you should not be doing PE and that’s an easy “ding.”

Some firms, particularly the mega-funds, like to go in-depth on technical questions and ask all sorts of obscure things that never come up on a regular basis.

“Fit” Questions

In terms of the “fit” questions, you want to have a good “story” around how and why you ended up where you are (just as with banking interviews).  Avoid stating the typical “bad” reasons to do finance jobs: money and prestige (even though many people do indeed do finance jobs for these very reasons).  And, of course, models and bottles (even though you can afford them now).

Instead, you want to focus on your interest in investing and if you’re coming from a banking or sell-side background, why you are more interested in investing as opposed to selling.  Standard reasons: adding more value, acquiring more in-depth knowledge, and gaining more responsibility.

One note on fit questions: in my reasons NOT to do investment banking post, I recommended against saying, “entrepreneurial work environment” as a primary reason for wanting to do banking.

For PE positions, this is more acceptable as it is a more entrepreneurial environment and in some cases members of the firm go on to work at portfolio companies or start companies of their own.  If you are a senior, partner-track hire, you don’t want to give the impression you will leave and do this, but for pre-MBA hires it’s not quite as taboo.

Since private equity interviews tend to be quite informal and more conversational than banking interviews, establishing rapport with everyone is essential.  If you can’t do this, your chances of getting the job are about as slim as JPMorgan honoring Bear Stearns offers.

Picking Deals To Talk About

Private Equity firms generally want Analysts with good M&A and LBO deal experience.  They don’t really care about IPOs or anything capital markets-related; they acquire companies, and that’s what they care about.  Yes, to exit an investment they could take a portfolio company public, but the bankers and lawyers handle most of that process so in-depth knowledge is not as important.

The first step here is deciding which deals to speak to.  As I wrote in my post on Private Equity Resumes, it’s best to pick either transactions that were unusual in nature or ones where you contributed a lot (or both).  “Standard” sell-side M&A processes are not great; divestitures, distressed M&A, and LBO deals are much better.

For the “complex” M&A deals, you generally have a lot of good qualitative issues to bring up in the interview (e.g., selling off parts of a company vs. the whole thing, figuring out standalone cost structure, dealing with subsidiaries and complex legal structures, closing before you run out of cash), while LBOs are good because you can talk about the numbers and why the deal worked from a financial perspective, as well as your knowledge of the process and debt-raising.

Oh, one last thing: you do NOT need closed deals or even announced deals.  Just make them anonymous if they’re not yet public.  You don’t want to end up in jail, or almost in jail, as a result of your interviewing efforts.

How To Talk About Deals

When you go through your deals, you want to start by giving a brief overview of the company, industry and major deal points:

You: “One deal I worked on was the $45B LBO of TXU by a KKR-led consortium of private equity firms.  The Company had around $10.9 billion of revenue and $5.6 billion of EBITDA and provided electricity to the Texas utility market.  The deal, struck at the height of the buyout boom, to a certain extent represented just how far private equity firms would go to find good deals, and also showed the cyclical attractiveness of the utilities sectors.  There were a whole host of major issues, from regulatory to environmental, associated with the deal.”

Interviewer: “Of course, that was all over the news in early 2007.  Let’s talk about the financial metrics of the deal, maybe you can walk me through the numbers here.”

At this point, you would go into the revenue and EBITDA multiples and industry-specific metrics you looked at.  Also go into the LBO analysis you did, the growth rates and margins you assumed, and the IRR your models predicted.

Interviewer: “I understand that, as part of the deal, the Company agreed to not build certain power plants.  Can you discuss that?”

Here you can go into the financial analysis you did to show the impact of not building those 8 coal plants they originally agreed to.  You really need to play up “unique” points like this where you did something out of the ordinary.  Explain the financial assumptions you made about each plant - required costs, projected power output and revenue generation, and then the effect eliminating them had on the LBO model.

You can also go into the regulatory and environmental considerations and all the deals that were struck with governments and environmentalists here, which are great to talk about.

Interviewer: “Great.  Let’s talk about the debt on the deal.  Can you walk me through what kind of package your bank(s) put together?”

Go over the basics - the total amount of debt raised, how many tranches and the kind of tranches - e.g., bank debt, high-yield, etc. - as well as the interest rates and covenants.  You can also go into different debt packages offered by various banks competing for the business and why one bank was chosen over the other.

Those are the major points to get across if you discuss an LBO with a private equity firm - basic overview, financial metrics and modeling, major issues and deal points, and the debt involved.  For regular M&A deals the discussion would be similar, but you’d be speaking about the accretion/dilution model rather than the LBO model and may not have to discuss debt at all.

Don’t go off on random tangents when going over deals.  Just remember, your hourly wage is just barely higher than a McDonald’s worker’s, whereas theirs is much higher.

But Wait, What If I Don’t Have Any Deal Experience?

If you come from a consulting or other non-investment-banking background, you may not have worked on any M&A deals.  If this is the case, you need to find close substitutes.  For consulting, these might be due diligence projects on deals or projects focused on operational improvement of a company.

If you’ve done equity research or some type of investment/asset management before, you want to discuss companies you initiated coverage on, invested in, or recommended investing in.

A dialogue similar to the one above should be your goal - you want to go through the basic overview, the numbers, and the “deal points” or main issues you confronted.  You also want to go over major risks and mitigating factors.  If we take the TXU example, investment risks might be all the regulatory issues and mitigating factors might be bribing all the environmentalist groups out there.

If you worked in corporate finance or corporate development before, you can speak about partnerships you worked on, integration work, or any other long-term project that consumed a lot of time and required significant analysis.

If you fall into none of these categories, why are you applying to private equity jobs again? :)  (You can get in from other backgrounds but it’s much harder.)

Case Studies

Another major point in most private equity interviews is the case study.  Typically, a private equity firm will give you an Offering Memorandum, filings, and other documents on a company and then you will make an investment decision one way or the other.

Usually you’ll create a PowerPoint or Word presentation and will submit some type of Excel model as well.

Case studies are a broad topic and I couldn’t do everything justice here, but here are a few of the major points:

• Make sure you actually make a decision one way or the other.  This may sound elementary, but you’d be surprised how many people complete case studies and don’t say, “yes” or “no.”
• Provide a summary page/slide in the beginning with your investment decision and back it up with 3-5 key points.  Also make sure you go over major risks and mitigating factors on this page, and give an estimate of returns as well.
• Keep this brief and to the point.  You simply don’t have time for anything else.
• Each page/slide should cover a separate point - industry, management team, financial performance, company’s products/services, major risks and mitigating factors, areas for further diligence, the output of your financial model, and how you would structure the investment/buyout.
• Don’t worry too much about formatting, just make sure it’s readable.  This may come as a shock if you are from an investment banking background.

At some firms, you will have to do this on the spot and you’ll have very limited time; at other places you will have a few days to a week or more time to craft this.  In any case, don’t go crazy and spend 100 hours doing this or anything - they understand you have limited time, so focus on what’s important and don’t go overboard with the rest.

And DON’T have your graphics department format your presentation.  That would be bad if your MD happened to walk by and see…

LBO Modeling

As I’ve alluded to throughout this post, some private equity firms will give you modeling tests and expect you to build an LBO model in real-time at interviews.

As with case studies, I would suggest keeping your models simple.  Go with the bare minimum that’s required because you don’t have time to get fancy.

In practical terms, this means do the following:

1. Basic sources and uses - don’t try to get fancy here with equity rollovers, PIK, 10 tranches of debt or anything.  Go with a simple view that has the purchase price and debt/equity used.  Maybe do 1-2 tranches of debt but keep things simple.  You need to get across that you understand the basic concepts behind an LBO model, not the super-advanced stuff.
2. Basic income statement - just do basic projections here, with revenue growth, SG&A or whatever expenses you have as a % of revenue and go down to EBITDA.  You can make a few basic assumptions to get to net income as well for the cash flow statement, but again don’t go overboard.
3. Basic balance sheet - Have the basics, like Cash, Accounts Receivable, Accounts Payable, PP&E and Debt, and use easy assumptions for these.  You should include acquisition effects like the new debt and any cash used as well as goodwill, but I would keep this as simple as you can while still making it, um, balance.
4. Basic cash flow statement - Net income, add back D&A and the change in working capital and subtract CapEx to get to your cash flow available for debt repayment.
5. Basic debt structure - just do the bare minimum in terms of Excel functions here and assume you can use all Free Cash Flow for interest/principal repayment each year.  Should just be a couple MIN functions.
6. IRR calculation at the end and maybe a few sensitivity tables on purchase price, exit multiples, and growth rates/margins.

This is a very high-level overview of how I’d build a “simple” LBO model - you can look forward to a more in-depth guide and working Excel model soon (I hope).

Simplicity is very important because you’ll only have 1-2 hours, at most, for this exercise.

Selling vs. Buying

Beyond just understanding the format of interviews, interview questions and practicing case studies/LBO modeling, it’s important to keep in mind something else with private equity interviews:

Do an equal amount of “selling” and “buying.”

This was actually advice given to me by a well-known headhunter and may be the only good advice I’ve received from a headhunter.

While you definitely want to push your own case and “sell” yourself as much as possible in interviews, you also want to pretend you’re a buyer and do some diligence on the firm.  If it turns out there’s a big cultural misfit, for example, you want to bail out early on.  Or if there’s a lot of cold-calling involved and you hate that, you similarly want to forget about the firm.

Since PE hires are much more long-term than banking ones, you really want to do your diligence; it probably won’t be some 2-year job that you can forget about afterward.

People often overlook this and just take the first opportunity available to them, but this is a serious mistake with private equity recruiting.

Differences Between Private Equity And Hedge Fund (And Other) Interviews

Although I’ve described private equity interviews above, hedge fund interviews are similar and will also tend to involve case studies and/or investment recommendations.  They will be less focused on deal experience and more focused on fit and knowledge/interest in the public markets, and it’s probably not necessary to practice LBO modeling with a hedge fund unless it’s a PE-like one.

Venture capital interviews will be even more focused on fit and personality and less on finance/deal experience.  They will also want to see good market knowledge since startups are so dependent on the relevant market(s).

Corporate development job interviews will be somewhere in between VC and PE interviews; they won’t be as focused on modeling and LBO modeling is unlikely to come up, but they will want to hear about your deal experience and analytical skills.

Timeframe For Interview Decisions

Going back to the theme of private equity firms being far more selective than banks when it comes to recruiting, the interview timeframe is generally much longer.

There are some exceptions - for example, at KKR, Bain, Blackstone and other mega-funds, they make decisions quickly and move in weeks rather than months.  This is simply because they compete for mostly the same people and therefore start interviews early.

Middle-market and growth equity firms will take much longer to make decisions and often shove you through multiple rounds, dinners and breakfasts and all sorts of hoopla to reach a “yes” decision.

They treat you as an investment opportunity and have to do very thorough due diligence before making a “yes”decision.

This is logical, as Private Equity firms make much longer-term hires than investment banks do, and therefore approach you as more of an “investment” rather than a number-crunching monkey as banks would.

Final Words: How To Prepare With Limited Time/Resources

So how do you prepare for private equity interviews if you’re an investment banking analyst with limited time at your disposal?  I would suggest the following:

1. Make a list of all the deals you’ve worked on and decide which are the best 3-4 to speak about in interviews.  Make sure these are also the ones on your resume.  Your bias should be toward complex M&A deals and LBOs.
2. Refresh yourself on the details of these deals, including background information, financial metrics, debt packages/covenants and what you personally contributed.
3. Practice constructing simple LBO models.  Get it down to where you can create a basic model from nothing in half an hour.

Amazingly, even though this post is already lengthy I’ve only scratched the surface of buyside interviewing here.  There are lots of other topics I plan to explore and upcoming guides, so stay tuned.

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