How to Break Into Private Equity – Straight from a 17-Year Veteran of the Industry
“Yup, everyone at business school still wants to do PE – even after the financial crisis, recession, and everything that followed.”
I was speaking with an MBA admissions consultant a few months ago, and she mentioned this point as if it were a surprise (that’s only true if you haven’t been reading this site…).
We’ve featured plenty of advice on how to get into private equity before, but today I wanted to do something different and ask a Partner at a fund for his tips on how to break in.
With almost 20 years of experience, he’s been through everything from frothy markets to recessions – and he can tell you exactly what the Partners at private equity firms who ultimately make the hiring decisions are really looking for, including:
- How to break into the industry at the junior, mid and senior levels
- How to craft your resume, spin your deal experience, dominate your private equity interviews and what interviewers really want to see
- The structure and hierarchy at a private equity firm and the different roles available
- The PE landscape going forward
Q: Let’s start with your background. How did you break into the industry and get to where you are today?
A: After graduating from college in the States, I worked in an American financial institution’s (FI) consulting division, helping the firm cover multinational corporations (MNC) in Asia.
I then transferred to Hong Kong within the same firm, and I was responsible for building and maintaining relationships with MNC customers in China.
After 2 years at the FI, I broke into PE in India through my own connections. I wanted to leave consulting, but leverage my consulting experience and work on the investment side doing direct investments.
Back then it was easy to make the transition because the Indian market was booming, and there were very few people with the skills to analyze and invest in companies and who could fit into the Indian language and also interact with MNC and global investors.
After 3 years at the PE firm in India, I was recruited back by the CFO of the FI I worked for to lead their PE arm and make investments on their behalf.
I spent 6 years there and focused on buying banks and finance companies. After my stint there, I went back to the States to get my MBA to rebrand myself because I was always known as the “FI guy” in my circle.
After finishing the degree, I was recruited by the Board of another FI to lead their PE arm and grow their P&L.
After one year there, the FI was sold to another bank and I moved to an Australian family office and private equity firm to help them build their Asian arm, hire multiple teams across Asia Pacific, and launch new funds.
I then decided to go out on my own and launch my own fund.
Q: Great. So what do you do at your fund and how do you spend your time?
A: I’m the Founder, Partner, and Chief Investment Officer (CIO) of my fund. I’m involved in capital raising and deal origination most of the time.
I also represent the face of the firm so I attend many events to meet people and market the firm.
My firm is an open-ended fund, so I spend around 40% of my time on capital raising, another 40% of my time on deal origination, and the last 20% of my time on attending events.
In terms of time spent between interacting with clients and reviewing deals, I’d also say that 70% of my time is spent dealing with external and internal clients, ranging from investors (LPs) to co-investors (other GPs) to investees.
The other 30% of my time is spent on reviewing deals, documents, drafting and legal matters. I review deals and transactions from beginning to end.
Q: How are the funds you worked for structured? And what are the relevant roles there?
A: In most PE firms there are two main divisions: “Investments” and “Operations.” Sometimes larger firms (over $10 billion USD AUM) have “Consulting” divisions as well.
The “Investments” division leads the investment process from origination to analysis to execution of deals; they usually focus on the deals and technical aspects and don’t know as much qualitatively about the industries they invest in.
In the “Operations” team, “Subject Experts” are hired from various industries to make sure the management team of each portfolio company can operate effectively, improve profitability, and so on. They worry about budgeting, forecasting, and any operational issues post-acquisition.
These “Subject Experts” tend to be executives from the industry with long track records of experience. They rarely come from the finance industry unless your firm happens to be acquiring financial services firms.
If things turn sour and the portfolio company is not generating the expected returns, the “Consulting” team at larger PE firms will come in to see how they can turn the business around. Such firms might also hire third party consulting firms like McKinsey to achieve the above goal.
The smaller the fund, the fewer the resources you see devoted to “Consulting” and “Operations” – small funds tend to focus more on doing the deals and letting management teams run the businesses.
The hierarchy is pretty similar to what you see in investment banking: Managing Directors (MDs), Directors (Ds), Vice Presidents (VPs), Associates, and Analysts, sometimes with slight naming variations.
Breaking In… At All Levels
Q: So what do you look for when you hire someone? Let’s start at the junior level (analysts and associates) first and go from there.
A: At the junior level, you need to demonstrate solid modeling skills, business acumen, strong work ethic, and ability to fit in with the firm.
The 3 most important qualities I look for in junior candidates are:
- Past Experience – Did they work for brand-name firms? Do they have 3-5 years of experience in investment banking, or at a PE firm? What deals did they work on, and did they find a way to earn more revenue or reduce expenses?
- Education – Yes, being from a top school always gives you an advantage… let’s face it, it’s difficult to get into the best universities and business schools unless you’ve worked hard over an extended period.
- Cultural Fit – It’s both important and irrational. One of my big investors is Australian, so I always have an Australian on my team to make him happy; another firm I know of only hires grads from Yale and Harvard.
Sometimes if I can find really, really good analysts/associates, I might be inclined to hire them and pay them a premium, because even at higher rates they’re still cheaper than VPs.
For Associate-level hires, candidates need to demonstrate that they can lead the due diligence process.
If I were to have an Investment Committee meeting tomorrow, would they know what to documents to prepare? Do they have strong project management skills?
I need someone who can hit the ground running when I hire him or her.
Q: Great… so what about mid-level and senior-level hires?
A: It depends on whether I’m looking for someone on the “Investments” side or the “Operations” side.
At the mid-level (VPs and Directors) on the “Investments” team, you need to demonstrate your ability to interface with clients, lead the due diligence process, and most importantly, lead and mentor others in the team.
The candidate should also be able to demonstrate his/her ability to do the first line of vetting – can the candidates vet the transaction before it gets reviewed by MDs and Partners to save them time?
I prefer someone with 7 to 10 years of experience in IB or/and PE for these types of roles.
On the other hand, if I’m hiring for the “Operations” team I would look for line managers, CFOs, and COOs of a business in the industry we’re investing in. I would also prefer someone with 7 to 10 years (or even more in some cases) experience in such industries.
At the senior level (MDs and above), I want someone who can demonstrate his/her ability to raise capital, originate deals, interface with clients of all levels (LPs, investees, other GPs) and represent the face of the fund. I want someone with 10 to 20 years of experience in IB/PE.
All of this comes down to a very simple rule of thumb: if you want to get hired in PE, you need to generate revenue or cut expenses.
This is not like a Fortune 500 company where you can just blend in, pretend you’re busy, and not do anything useful.
The more people we have, the lower the upside for the General Partners so I would rather not hire someone than hire the wrong person.
Q: It’s interesting that you said “IB or PE” experience above, because most people seem to think it’s impossible to move over if you’re already at the top in banking.
What about the MBA? How useful is it for PE?
A: It’s important if you want to reach the MD level or above since it gives you a solid network and more credibility, but don’t bother unless you can get into one of the top 10 schools worldwide.
I actually got my MBA because I realized that all PE firms greatly value pedigree, even if they’re smaller and not as well-known as the mega-funds.
If you want to work at a normal company or start your own business, an MBA is not as useful.
Q: Headhunters: Evil? Helpful? Useful?
A: I’ve had mixed experiences there.
They can be somewhat helpful in finding good candidates, but individual recruiters matter a lot more than the firm itself (i.e. don’t assume the headhunter is good just because his/her firm has a good reputation).
Some headhunters are lazy and don’t filter CVs before sending them, or don’t verify candidates’ information well enough.
One time a headhunter presented a bunch of candidates who had all worked on the same deal, and who had all claimed to have performed the exact same tasks in the same role.
So we don’t rely on them 100% because of those types of problems.
Q: You’ve mentioned what you’d look for in the ideal candidate, but many readers aren’t in that position (i.e. they don’t have IB or PE experience, but they have worked for many years and now want to move into PE).
What should they do?
A: If you don’t get IB or PE experience early on, your next best bet is to work at one of our portfolio companies or another company in the industry and get experience running a line of business, and then join the “Operations” side of a PE firm.
It’s better to learn something about an industry or real business, get to know the GPs at the firm that owns it, and then get your foot in the door like that.
An MBA is another option, but it wouldn’t be terribly helpful without transactional experience beforehand.
Q: What about fundraising? Can’t people with strong sales skills help PE firms fund-raise?
A: I do the fundraising myself. It’s challenging, if not impossible, for people without the relevant PE experience and seniority to do fund-raising.
Limited Partners want to sit down with the decision-makers of the fund and have direct access to them before investing – someone who does only fund-raising but isn’t involved with the investment process wouldn’t be that helpful to them.
Q: I see, so I guess you’re not meeting with too many potential investors in those “PE fundraising” roles that get advertised.
What about starting out in the back office of a PE firm and moving to the front office through there?
A: Unlikely. Your only chance there is lots of networking and getting to know the GPs very well.
Just like banks, PE firms also have “the back office” (administration, compliance, legal, accounting, HR, etc.) but more of the functions there are outsourced to 3rd parties and there’s less overhead than at banks.
So not only are there fewer roles, but there’s also less of a chance to interact with the investment staff.
Q: What about something like TAS (Transaction Advisory Services) at a Big 4 firm?
A: We rarely hire people from these teams, because someone with IB/PE experience could do the same thing and if we really have a need for the skill set, we would just pay the Big 4 firm for their services.
You would want to move to the internal M&A team at a Big 4 firm if you’re in this position, because it’s easier to break in if you’ve worked on deals from start to finish.
Resumes, Interviews, and More: Got Deal Experience?
Q: Well, I guess that’s somewhat good news – at least you have more hope than someone in the back office!
Moving on, what about resumes? What matters specifically with deal experience, and what should candidates highlight on their resumes?
A: Everyone, especially at the junior-levels, likes to claim credit for things that they most likely didn’t accomplish – and I can easily see through that.
Sometimes listing too many deals on your resume can actually work against you because it makes me skeptical of your level of involvement with each one.
The most important point is to detail your specific role on the deal and also point out anything unique you did.
Did you find something in due diligence that led to your firm not doing the deal? Did you come up with a better capital structure that allowed the deal to progress?
In an ideal case, you can point to how you moved the deal forward, helped win a higher/lower price, or uncovered a red flag during due diligence.
If you don’t have anything like that, at least have a strong opinion on each deal you did: was it good or bad for both parties? Neutral? Something else?
Banking is all about process, but investing is more about thinking for yourself and making decisions on whether or not a deal is good or bad.
Q: Right. We already have quite a few articles and templates for PE resumes, so anyone reading should refer to those for some good examples… but that point you mentioned about having an opinion is very important, since you gloss over that many times on the sell-side.
What about the interview process itself? How does that work at your firm?
A: It takes me 4 months to hire someone given my team members’ travel schedules. After a candidate gets shortlisted from the first round, we want him/her to have at least another 4 interviews.
Depending on the level of the hire, the interviewers will be different. If I were hiring for an analyst, I’d have the associate interview him/her. If I were looking for a VP, I’d have a Director interview him/her.
For analysts and associates, I’d also ask them to send me previous models they built and teasers they drafted (with sensitive / confidential information removed, of course). I want to know if they know what to bring in to an investor committee meeting.
For senior-level hires, I would also ask them for their “Rodolex” of investors and their track record.
Q: I’m surprised people feel comfortable sending over models they’ve worked on, but I guess they are up against tough competition.
What types of interview questions are most common?
A: Most PE interview questions fall into 5 broad categories:
- Fit / Background – Tell me about yourself, what are your end goals, how long will you be here, what motivates you, what are your strengths/weaknesses, and so on.
- Market / Industry – What market do you find interesting? What industry should we invest in next and why? What’s something that everyone else likes but you don’t?
- Technical – Similar to investment banking technical questions, but more of a focus on leveraged buyouts and calculating returns.
- Deals and Clients – Walk me through a transaction you worked on, tell me about something you did that created value, tell me your specific role in the deal. Also, what would you do if an investment turned sour? If a past deal went bad, how would you fix it?
- Case Studies and Modeling Tests – The main mistake candidates make here is focusing too much on technical details and not enough on their reasoning. Make sure you can tell the “story” around your case study first, and use your model to support your decision second.
Q: Great, thanks for those examples. It sounds similar to investment banking interviews and what we’ve already covered on private equity interviews, but the focus is on thinking like an investor.
What makes a candidate STAND OUT in terms of his/her story, interview & pitch? You must see tons of candidates from top schools and banks, so how do set yourself apart?
A: What was your value add? What did you differently? I want someone who could see opportunities that no one else could see, and who could then capitalize on those opportunities and generate revenue for the firm.
At the junior level, I want to know candidates’ thinking process. I want candidates who can save me money, have the ability to find value, and who can lead the DD process.
At the mid level, candidates should be able to demonstrate their ability to interface with clients and originate deals.
At the senior level, I prefer candidates who have a track record of originating deals, raising capital and making sound investment decisions. I also want to know his/her yield and ROI.
As you said, there are tons of people from top schools and banks who want to get into PE, but only the ones who can immediately add value and start generating revenue for us get in. That’s the only way to set yourself apart – a track record of results.
Going Forward: Private Iniquity?
Q: Going back to that quote from the MBA admissions consultant in the beginning, lots of people still think that PE is the “promised land.”
What do you think about its future prospects? Is everything shifting to Asia?
A: There is definitely a shift to Asia, and you’ll see more deal activity here versus the European region. With that said, China and India are not going to grow at 8-10% forever, and high inflation there is also a concern.
Valuations in China are high and the IPO markets are lackluster, so I wouldn’t say opportunities are stellar.
In India, few shareholders want to sell their companies, and many only sell 5%-15% of their stake, which is very little (somewhere around $50 million USD) for a PE firm.
Europe is going through a tough time, though I can see opportunities in large ticket deals (i.e. buying distressed firms on the cheap) and heavily leveraging them.
Q: Thanks for sharing your thoughts. Lots of people still think that there’s too much money chasing too few deals – do you think PE firms will change in the future to survive and innovate? Will fundraising change in any way?
A: Going forward, I believe PE firms will have to innovate by giving investors more liquidity after they invest.
Instead of locking up investors’ money for 7 years, GPs can shorten the lock-up period to three years and give investors the option to extend their investment period.
It is challenging to raise capital from LPs in this environment and you can see PE firms seeking alternative sources of capital raising. Even mega-funds such as Blackstone are seeking more liquidity in the capital markets.
Q: Great. Thanks for your insights and time! Long interview!
A: Anytime, enjoyed the chat!
Nicole Lee has worked in institutional sales, private banking, and investment banking in Hong Kong. When she’s not working, she enjoys kiteboarding at exotic beaches, jumping off planes and bridges, and shark-diving.
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