How to Get into Private Equity from a Bulge-Bracket Bank and Conquer the Crazy Recruiting Process
Just how crazy is the private equity recruiting process?
If you’re at a bulge bracket or elite boutique in New York, and you want to work at a megafund or upper-middle-market fund, “very crazy” is the best response.
We’ve covered aspects of the recruiting process before, but we’ve never featured a step-by-step account from a reader who just went through the entire process.
I’ll let him take it away from here:
Sources and Uses of Recruiting Stress
Q: Can you summarize your story for us?
A: Sure. I went to a semi-target university in the U.S., did several finance-related internships, and won a summer offer at a bulge-bracket firm, which I converted into a full-time offer there.
Midway through my first year, I participated in private equity recruiting at mega-funds, middle-market funds, and others, and I won an offer at a relatively new middle-market fund.
Q: Great. Can you walk us through how the PE recruiting process begins?
A: In late August, you – a newly minted 1st Year IB Analyst – get out of training and start working.
Starting in early October, about 7-8 core recruiting firms start reaching out and asking what you’re interested in.
These firms include CPI, Dynamics Search Partners, SG Partners, Henkel, Amity, Oxbridge, and a few others.
At this stage, you MUST state a specific goal.
If you say, “I’m open to both hedge funds and private equity,” you will be written off immediately.
Once the firms have contacted you, you have until the middle of December to respond and schedule a meeting (Keep a suit jacket in the closet!).
Speak with the 2nd Year Analysts at your bank to get up to speed on everything – they can tell you how to write your resume, how to use the right lingo, and how to sound convincing even when you don’t know what “private equity” is.
Q: And what types of questions will the recruiters ask?
A: Nothing too complicated – “Walk me through your resume?”, “Why PE?”, and “Which types of PE firms in terms of industry, geography, and deal size?” are common ones.
But the problem is that headhunters have a ridiculous amount of power in this process, and they rarely take the time to understand the nuances of your experience.
So even if you have exceptional answers for why you want to move from a specialized industry into a generalist PE firm, 99% of headhunters will say, “We don’t have any openings at generalist PE firms, sorry!”
You’ll have almost no real deal experience at this stage, so you have to spin your pitches and early-stage deals into sounding important.
Q: OK. So, what next?
A: If you make a positive enough impression on the recruiters, you’ll be invited to “coffee chats” and cocktail events held by PE firms, starting in early January.
There might also be “pre-breakfast events” at 7 or 7:30 AM.
At these events, there will be around ten banker candidates at each table, along with a few VPs, Principals, and maybe one or two MDs from the firm.
A mid-sized firm might pick 50 bankers to attend one event, and then select 20-30 of them for first-round interviews.
“Networking” at these events does not help you much, so don’t get your hopes up.
Interviews start a few weeks after these events, and it’s almost impossible to distinguish yourself from everyone else there.
Also, whether or not you get an interview depends more on headhunters’ whims than your interactions.
You don’t necessarily need to be at a “top” bulge bracket or elite boutique to be invited to these events; if you’re already at a bank in that category, your group matters more.
Q: And then?
A: The mega-funds hold a “kick-off weekend” in the last week of January where they send out an email at 7, 8, or 9 PM on Friday night to all their candidates.
A different firm kicks it off each year; my year, it was Apollo.
The mega-funds might conduct four or five 30-minute interviews with each candidate on Saturday and then call the successful candidates back for a 2-hour modeling test.
At the larger funds, this test is easier because it is just a speed test.
You don’t have to walk through your thinking or explain your investment thesis; the process takes place so quickly that there’s no time for that.
Aside from the modeling test, the technical questions are very similar to those in IB interviews. They might be a bit more advanced, but the topics are similar.
You’ll go to sleep on Saturday – maybe – and wake up on Sunday to see if you made it to the final round, which takes place that day.
This final round is usually one last interview with the most senior people at the firm.
If you’re in a top group, such as Goldman Sachs TMT or Morgan Stanley M&A, you might have to juggle 5-6 separate interview processes that weekend because the mega-funds all want to finish in 48 hours.
If you receive an offer at a mega-fund, you’ll know by Sunday night or first thing Monday morning. At that point, you’re done, and you can look forward to your next job… starting in 1.5 years.
Q: I’m almost afraid to ask what happens on Monday morning, assuming you wake up.
A: The mega-funds finish up in 48 hours, but upper- and lower-middle-market funds kick off their processes on Monday and throughout the following 2-3 weeks. These funds might have up to a few billion USD in AUM.
One process I had with a middle-market fund went like this:
- Four 30-minute interviews.
- One 30-minute “Paper LBO” modeling test with no Excel or calculator.
The “Paper LBO” tests your ability to estimate debt repayments and the company’s cash and debt balances upon exit so you can make a quick IRR calculation.
You need to simplify ruthlessly to do well in these tests.
For example, assume that CapEx = D&A and that the Change in Working Capital is a simple percentage of revenue, the change in revenue, or even a constant figure.
If you don’t do that, you’ll never finish these tests in 30 minutes.
This “on-cycle” process continues until February or early March. “On-cycle” means that you’re interviewing for positions starting the next year.
During this time, you have to do constant LBO modeling practice, conduct practice interviews with fellow Analysts to discuss your deal or “fake deal” experience, and so on.
Despite doing a lot of prep, going through interviews at many firms, and networking extensively, I did not win an offer at this stage.
Q: What happened?
A: I was type-cast as “The technical/niche industry-specific guy.”
Within my industry, I worked on mostly “generalist” deals (Think: Gaming/lodging in real estate, energy services firms in natural resources, or fintech companies and brokerages in FIG), but that didn’t help much.
Also, your undergraduate institution, GPA, and bank name play a huge role in the process.
If you went to Princeton, had a 3.9 GPA, and worked at Evercore M&A, you’ll get interviews everywhere.
But if you went to a semi-target school and didn’t work at the top few banks, it’s much harder to win interviews – even if you have good grades and deal experience.
Group track records also matter a lot, so if you’re in a group that consistently gets their Analysts interviews at Firms X, Y, and Z, you are likely to get those same interviews at Firms X, Y, and Z.
Finally, competitive tension is extremely important.
If you can win an offer at one firm, you can take that news back to headhunters and say, “I have an offer at Firm X. I want offers at Firms Y and Z. What can you do for me?”
Headhunters turn responsive quickly in that scenario because their chances of earning a commission increase substantially.
Almost everyone who won multiple offers did it by winning a single offer first and then leveraging it to make other firms act more quickly.
Q: OK, thanks for explaining that.
So, how did you finally win your offer?
A: Many firms avoid this chaotic process in the winter, and instead interview through the spring and summer for positions with immediate start dates.
I found a unique firm through one of my MDs – the Founder had worked at a traditional PE fund, done well, and decided to split off and start a fund a few years ago.
The interview process there was very natural since I entered via a referral; they gave me a 2-hour modeling test based on a portfolio company and the use of its CIM, but they focused a lot more on my thought process.
I had planned to stay in banking for a few years, but I couldn’t say “No” to the opportunity – so I left banking, took my vacation, and started working at the PE fund.
Private Equity Recruiting: The Hunger Games?
Q: The way you described the PE recruiting process, it sounds like there are very few ways to improve your chances of winning an offer.
Is that true?
A: Not entirely; the most helpful thing you can do is prep, prep, and more prep.
The biggest challenges in PE interviews are time-pressured modeling tests and deal discussions, so practice until you’re sick of them.
If you don’t have any live M&A deals, pretend that you do.
Take a pitch book you’ve worked on, read some equity research on the company, and then describe the merits and drawbacks of the potential deal.
You cannot say: “I don’t have any live deal experience.”
Your answer must be: “I’m working on a few deals, but they haven’t closed yet.”
Also, leverage the 2nd Year Analysts for help with resumes, interviews, and modeling tests. They will explain what to expect and how to work with headhunters.
Q: Thanks for clarifying that.
What has the job been like so far?
A: Overall, I like it a lot. There’s far more “real work” evaluating deals, and far less emphasis on formatting and grunt work.
The lifestyle is also quite a bit better, but that’s true mostly for smaller funds; if you go to Blackstone, it will be banking hours all over again.
My time split looks like this:
- Evaluating New Investments: About 1/3 of my time; this includes reviewing CIMs, investment memos, and deals at various stages of progress.
- Working with Exiting Portfolio Companies: Another 1/3 of my time; I look for expansion and acquisition opportunities.
- Sourcing: The last 1/3 of my time; if we’re not doing much sourcing, it’s more of a 50/50 split between the first two categories.
If you’re at a firm with a lot of sourcing, like Summit or TA Associates, you might spend up to 75% of your time on it.
I’d say I’ve learned more in 6 months on the job here than I did in 12 months at a large bank.
Q: How is the modeling/technical work different from what you do at a bank?
A: Everything is more granular, and we do more channel checks to verify the numbers.
For example, instead of just assuming that the company will sell 4-5% more units per year, we’ll look at the trends for other companies, industry-wide growth rates, and what suppliers and resellers are reporting.
If we decide that a 1-2% growth rate is more appropriate, we’ll ignore the company’s projections and use our data instead.
Our firm doesn’t focus on traditional turnarounds, but we do look for ways to improve operations at companies, including better agreements with suppliers and employees and new JV/partnership opportunities.
Q: And what’s the compensation like?
A: At mega-funds and upper-middle-market PE funds, 1st Year Associates earn a $150K base salary and a $150K bonus for all-in compensation of $300K USD (as of late 2016).
They may give you the opportunity to co-invest in deals, but you won’t get carry.
Lower-middle-market funds tend to pay base salaries of $115-135K and bonuses equal to 100% of those base salaries, for all-in compensation of $230K– $270K USD.
Finally, the smaller funds tend to pay $100-$110K base salaries, and the bonus is often less than 100% of that; all-in compensation might be slightly below $200K.
You may get more of an opportunity to co-invest in deals at these smaller funds, but carry is still unlikely.
Sometimes they also give you a “bonus” that you can allocate into each deal.
Q: And what are the advancement opportunities like at the smaller funds?
A: Associate roles are not structured “2-year-and-out” programs; they want you to stay for the long term as the firm grows.
With that said, there’s no guarantee that you’ll advance. If you do well, you might be promoted to Senior Associate after two years, but it will take more time to reach the VP level.
Smaller funds also tend to care less about an MBA than bigger funds, so you don’t necessarily need to go back to school to move up.
Q: Great. And what are your plans?
A: I plan to stay here for at least two years and see how the fund does. If it takes off, our deals perform well, and we hire more people, I’ll stay and reap the benefits.
If not, I might consider getting an MBA or moving to a larger fund in the future.
I don’t think I could see myself going back into banking; the lifestyle alone would be hard, and the work is less interesting.
Q: Great. Thanks for your time!
A: My pleasure.
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