How to Get Into Private Equity: Step-by-Step Guide
What’s the easiest way to trick people on the Internet?
I’ve seen dozens of schemes over the years, but some of the most common ones are guides about “getting into private equity.”
They’re not all bad; some have a few decent tips and tricks.
But most of these guides fail to disclose one important point: Unless you have exactly the right background, it will be an uphill battle to get into the industry.
Still, you’re probably obsessed with working at KKR or Blackstone, so I’ll explain the entire process from beginning to end – including why it’s so ridiculously hard to break in:
Your Brutal Reality Check
Whenever I write about this topic, we tend to get questions from non-traditional candidates who believe that their backgrounds will appeal to private equity firms:
- Science or engineering PhDs.
- Post-MBA investment banking associates.
- Corporate lawyers.
- World of Warcraft gold farmers.
- Male strippers.
- Mid-career corporate finance professionals.
Unfortunately, you have a very low chance of getting into private equity from these fields.
Overwhelmingly, private equity firms hire:
- Investment Banking Analysts at bulge-bracket and elite-boutique banks, as well as a few In-Between-a-Banks.
- Professionals who already work in PE at different firms.
- And smaller firms also hire IB Analysts at middle-market and boutique banks.
It is possible to get in if you’re not in one of these categories, but it is not probable.
If you get into the industry and you’re not in one of these categories, then:
- You’re outside the U.S. / U.K., in a market where it’s more feasible for non-bankers to get in. Examples include Russia, India, Central & Eastern Europe, and Portugal.
- Or you’re in a closely related field where you work on transactions – examples include Big 4 valuation/advisory, direct lending, corporate development, and real estate. Consulting might qualify, but it’s still a challenge in major markets.
- Or you’re aiming for new or smaller funds that do not have highly structured recruiting processes.
I’m not trying to scare you away, but I do want to be realistic about your chances.
But What If You’re Not in Any of Those Categories and You Still Want to Get In?
My top recommendations would be:
- Go for real estate roles, such as commercial real estate brokerage or real estate lending, and leverage those to move into real estate private equity.
- Consider corporate development careers instead of PE, especially if you’ve had prior banking experience. The pay is lower, but the work environment is better, you can have a life, and the work is similar. And you can potentially move into PE or IB from here.
- Consider the nuclear option: Attend a top business school, do investment banking, and then pursue exit opportunities as a post-MBA Associate. Not easy, but possible.
- Wait until you become much more senior and join a PE firm as an Operating Partner or Consultant. It’s not the same as working on deals directly, but you can still impress vapid socialites by saying “you’re in private equity.”
For the rest of this article, I’ll assume that you’re in investment banking or a related transactional role, or that you’re in a market where non-bankers can get in.
On-Cycle and Off-Cycle Processes
First, note that there both on-cycle and off-cycle processes; they differ in timing, steps, interviews, and hiring criteria.
The on-cycle process is the one that begins for Analysts at bulge-bracket and elite-boutique banks in New York within a few months of their start date.
It starts and finishes very quickly, with the mega-funds interviewing everyone and handing out offers in a single weekend, and middle-market firms finishing after that.
Headhunters have a ridiculous amount of power in this process, and if they don’t like you, you’re screwed.
If you finish the on-cycle process and win an offer, the position will start in 1.5 – 2.0 years.
So, you may interview in December of 20X1, keep working in banking, and then begin the PE role in July or August of 20X3.
The off-cycle process is for everything else: Roles outside of New York, including those in other countries, roles at smaller firms, and roles available to anyone not working at an investment bank.
In the off-cycle process, you start working immediately after winning the offer, which makes a lot more sense than waiting for 1.5 – 2.0 years.
Off-cycle processes tend to take more time – months rather than weeks or days – and interviewers evaluate your “fit” and critical thinking abilities in more depth.
Case studies and modeling tests in on-cycle processes tend to be time-pressured ones where you have to get the answer as quickly as possible, while the ones in off-cycle processes require more thought and a real investment thesis.
In some places, the typical process is in between these extremes.
For example, many headhunters in London begin contacting candidates a bit later than in NY, and they present both “start immediately” and “interview in advance” opportunities.
Larger funds there stick to more of a set schedule, but it is not as structured as it is in NY.
Regional Variations: Got Emerging Markets?
In markets outside the U.S. and U.K., the interview questions and case studies/modeling tests tend to be similar.
However, the process, timing, and candidates all differ. The industry size and deal focus may also be different.
To give you a specific example, let’s look at the private equity market in Brazil.
The main differences vs. the markets in the U.S. and U.K. include:
- The industry is far smaller – total PE deal value is around 5% of the total deal value in North America. As a result, there are fewer firms and fewer positions.
- Growth equity deals are more common than traditional leveraged buyouts; EBITDA growth, rather than financial leverage, drives returns.
- PE firms still hire a lot of former bankers, but you can also join as an undergraduate, do a part-time internship, and convert that into a full-time offer. This move is less common in developed markets.
- The process is far less structured, and almost every firm uses off-cycle recruiting. Headhunters have significantly less power, and you can network your way into interviews more easily. The entire process might take from 3 weeks up to 3-6 months.
- Technical questions and case studies are similar, but you’re more likely to get growth equity cases that involve 3-statement models with minimal leverage rather than traditional LBO models… like our Atlassian case study.
In fact, they may even apply to other developed markets that are smaller than the U.S. or Europe.
Even though the process is less structured, it does not necessarily mean that you’ll have an easier time as a non-traditional candidate: There are also fewer firms and fewer positions.
What to Expect in the On-Cycle Recruiting Process
We published a detailed article about the on-cycle recruiting process a few months ago, so I’ll link to that rather than repeating everything here.
To summarize, you start working in August as a first-year IB Analyst.
Within months of that, headhunters, such as CPI, Dynamics Search Partners, SG Partners, Henkel, Amity, and Oxbridge, begin contacting you.
Then, you’ll schedule your first meetings with headhunters, and you’ll need a very specific idea of the PE firms you’ll pursue (industry, geography, deal type, and size).
You will have almost no real deal experience by this point, so you’ll have to spin pitches and early-stage assignments into sounding impressive.
After that, you’ll get invited to networking events held by PE firms.
The mega-funds kick off recruiting on Friday night one week, interview each candidate 4-5 times over the weekend, give each one a 2-hour modeling test, and notify the winners by Sunday/Monday.
After that process ends, middle-market funds start and finish recruiting; they still tend to conduct 4-5 interviews and one speed-based modeling test, but they take place over a longer period, such as a week or several weeks instead of 48 hours.
The frustrating part about on-cycle recruiting is that headhunters have a ridiculous amount of power, and they use tunnel vision to filter and recommend candidates.
If you worked in FIG, good luck winning interviews at tech-focused growth equity firms – even if you mostly worked with fin-tech companies.
If you worked in Oil & Gas in Houston, good luck winning generalist roles in NY.
You can practice discussing your deals and building LBO models, and it certainly helps.
But your fate is determined based on events that took place years ago, like that Chemistry final you bombed in your first year of university.
What to Expect in the Off-Cycle Recruiting Process
The off-cycle recruiting process is the opposite of the on-cycle one:
- Headhunters have little power here; if you’re a non-traditional candidate, headhunters will barely pay attention to you.
- Rather than picking firms based on specific criteria, you should spread as wide a net as possible because the companies that show the most interest may be completely random.
- Rather than starting and finishing in 48 hours or 2-3 weeks, off-cycle processes can last for many months as you meet everyone at the firm multiple times.
But in the off-cycle process, this would be a mistake: It’s far too specific a goal, and it will artificially limit your options.
Instead, find every boutique and middle-market fund you can, and reach out to Senior Associates and Partners at these firms to present yourself.
Competitive tension is incredibly important because the first question anyone will ask you is: “Who else are you speaking with?”
If you can’t name several other, similar funds, the person will immediately lose interest in you.
Even if you’ve just exchanged emails or LinkedIn messages with someone, spin it into sounding more important: “I’m currently speaking with Firms X and Y, and I have an interview with Firm Z tomorrow.”
You can call informational interviews “interviews” because they do turn into real interviews.
There isn’t necessarily an ideal time to start this process, but you may want to wait until the on-cycle process is done; smaller firms may not even pay attention to recruiting until then.
Interviews and Interview Questions
Private equity interview questions fall into five main categories:
- Fit/Background – Why do you want to do private equity? What do you know about our firm? What are your long-term goals, and how do we fit in? What are your strengths and weaknesses?
- Market/Industry – Which industries do you find interesting? Which companies would you invest in? Which markets do mainstream investors view incorrectly? What makes a market appealing or not appealing?
- Technical Questions – These are similar to investment banking interview questions, but sometimes there’s more ‘critical thinking’ involved. For example, they might ask you why two companies with similar growth profiles and margins might trade at very different multiples and what it means for their investment profiles.
You’ll also get questions on “quick IRR math” for leveraged buyouts, which we cover in this YouTube video. You will not receive questions exclusively on LBOs; accounting, valuation/DCF analysis, and even merger models could still come up.
- Deals/Clients – You’ll have to walk through at least 1-2 deal/client experiences in-depth, explain what you did, and point to the value you added. Did you find a major mistake in due diligence that saved your client money? Did you find a way to position your client that resulted in new buyers or more qualified interest?
You should also prepare critical views of all your deals: If you were a PE firm, would you have acquired your client? Why or why not? Interviewers often turn your deals around and ask questions like that.
- Case Studies and Modeling Tests – Modeling tests can range from 30 minutes (“paper LBO models”) up to 1-3 hours, or even several days to a week. The main categories are as follows:
Very Quick Tests – They might give you 30 minutes and ask you to build a simple LBO model using pencil and paper, with approximations and mental math.
- Example: Look, I’ll be nice and share a worked-out example from our Interview Guide. Bonus points if you catch the TV show references! You can also check the link above to get an even simpler LBO model from our YouTube channel.
Intermediate Tests – These could last from 1 hour up to ~3 hours; you’ll build a real LBO model in Excel, but you may not necessarily build a full 3-statement You could easily get away with a cash flow-only model, especially for a 1-hour test.
Take-Home Tests – These are the most difficult ones because you need a real investment thesis, risk factors, and decent industry knowledge.
- Example: Our Dell LBO case study is a good example, but the model itself is far more complex than what you normally build. Focus on the short presentation at the end.
You might have a few days up to a week to complete a test in this last category.
Even though you have 10x more time, you should not build a 10x more complex model; spend that extra time learning the industry in-depth and coming up with a solid thesis.
How to Win Offers
Most candidates focus far too much on the modeling tests and technical questions and not enough on the other question categories above.
That is a big mistake because private equity interviewers, like investment banking interviewers, ultimately make decisions based on fit.
Yes, you need to know how to build a model, write an investment thesis, and answer technical questions, but those are more like boxes they have to check than anything else.
That is especially the case in off-cycle processes.
The formula for success looks like this:
- You Can Answer Technical Questions and Build Models Relatively Well – Good! Extra bells and whistles mean less than getting the fundamentals right.
- You Have Good Reasons for Wanting to Be in the Industry – For example, you have a long track record of investing, you analyze industries for fun, and you have strong views on companies and deals. You’re not just doing it for “improved hours and pay.”
- You Have Added Value to Deals and are Capable of Running Deals – No one will hire you if they have doubts about your ability to work independently.
- You Pass the Airport Test – You will be in airports a fair amount, so the Partners and other team members must want to spend time with you.
You Win an Offer: What Next?
If you reach the end of the process and win an offer, congrats!
You should accept it, especially if you won it through an off-cycle process, because your chances of getting into PE are just barely above being struck by lightning.
You could attempt to shop it around and win other offers, and sometimes that will work, especially in the on-cycle process.
But unless you have a really, really good reason for doing that, it’s best to accept your results.
No Offers: What Now?
If you go through the entire process and you don’t win offers, you need to figure out what went wrong.
Did you not get enough interviews?
Could you not tell your story effectively?
Did you fail the technical parts and case studies?
Did you not have relevant enough experience?
Once you’ve pinpointed the problem, getting brutally honest feedback if necessary, fix it.
You might fix these problems with a different approach to networking, business school, more practice, or a “steppingstone” role, such as Big 4 valuation/M&A, first.
Whither Private Equity Recruiting?
Truthfully, the PE recruiting process does not require much intellectual horsepower.
You’re not building rocket ships; you’re doing arithmetic.
The biggest challenge is that many people go into recruiting without a clear idea of what firms are looking for, what your background must look like, and the proper strategy to use.
Get those right, and you might just avoid being tricked on the Internet.
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