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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 mega-fund 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 investment bank, which I converted into a full-time offer there.
I stayed there for a year and worked in a relatively specialized/technical group (Think: Real Estate, Oil & Gas, FIG, Restructuring, etc.).
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.
Within a few months of that, 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 to respond and schedule a meeting quickly (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!”
It is also very tough to attract interest if you’re in ECM or DCM; LevFin is a bit easier since you gain M&A and LBO exposure there.
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.
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” where they send out an email at 7, 8, or 9 PM on Friday night to all their candidates.
This seems to happen earlier each year – a long time ago, it was in February, but then it moved to January, then December, and it might eventually begin in August.
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.
The test will always be an LBO model, and it might also include a CIM and investor presentation for the data.
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.
You may also be able to simplify the model even further with assumptions such as a cash-free debt-free basis.
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 – 2.0 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 or the change in revenue.
If you don’t do that, you’ll never finish these tests in 30 minutes.
This “on-cycle” process continues for a few months. “On-cycle” means that you’re interviewing for positions starting the next year or year after that.
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 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. Private equity offers 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 Private Equity Associates earn a $150K base salary and a $150K bonus for all-in compensation of $300K USD (as of 2016-2017).
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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About the Author
Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.
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Hey Brian,
Long time reader here finally posting a question. Would definitely appreciate any insight.
I’m a First Year Analyst at a MM Investment Bank (industry group in NYC). Same tier as something like Piper/HW/WB/RJ/Stifel. Semi target school and alright GPA
My goal is UMM/MM PE-something above LMM really. The relatively grueling hours of IB or MF PE are something I’d want to avoid in my late 20s/early 30s, and PE does actually sound pretty interesting to me.
In your other replies, I have seen you recommend analysts in my position to lateral to BB/EBs as thats a significant advantage for PE recruiting.
My question is how would this impact my PE recruting cycle timeline. If I end up starting to lateral recruit now and get to a BB/EB by August 2021, wouldnt that hurt me for PE recruting since I might miss the train there? I know most BB/EBs have a 2 yr and out culture so its not like I’d have the option of extending my analyst stint for another year right? (Total 4 yrs of IB analyst across MM/BB?)
Also, do you find the chances of landing a lateral typically hard for someone in my position in the first place? Is it worth the time that could otherwise go towards trying to directly land PE from my MM bank?
Thank you
Yes, you would have to stay there for 3 years and leave (as they would probably bring you in as a 1st Year Analyst) or find a firm that does off-cycle recruiting and leave once you get the offer.
As for whether or not a lateral move is worth it, it really depends on the specific PE firms you want to target. Your chances will always be higher at BB/EB banks, but you’ll also end up staying in banking for more time and not necessarily earning much more in PE if you’re going to target mid-sized funds in either case.
If you really care about the difference between “lower-middle market” and “upper-middle market,” then you should probably move to a bigger bank. In practice, most people do not really care or notice the slightly higher compensation, so in many cases, a lateral move may not make sense.
Hi Brian, I have 2 JPM IB offers:
1. Tech San Fran
2. M&A/Tech/FSG NY
I might be interested in PE later. Can you kindly provide some insight on:
1. Pros & cons for each
2. What PE funds will be interested in each
3. Potential career path/Lifestyle
Thanks!
They are both really good. The main difference is the obvious one, the SF offer will be better for tech PE, growth equity, and VC opportunities, and the NY one will be better for mega-funds based in NY. Take a look at the articles on the venture capital career path, growth equity, and private equity career path for more. It really just comes down to your preference for tech vs. generalist opportunities.
Hi Brian,
How do headhunters find and reach out to IB analysts? Or do IB analysts need to network/make connections with headhunters in order to get PE interviews?
Thanks!
They will contact you if you’re at a BB or EB bank.
Brian,
How much do your undergrad institution and GPA matter relative to the bank/group you’re in during this process?
Also, how much would it help to have PE internship experience from college?
Thanks.
They matter to some extent, but recruiters tend to sort people by bank and group first. So, an analyst from a non-target school working in GS TMT will still be ahead of someone from Princeton who’s at UBS. But within the same bank, those with better universities and GPAs tend to win out.
PE internship experience helps, but these days almost everyone has multiple finance internships before working in IB full-time, so it won’t make that big a difference.
Hi Brian,
Thanks for the great interview! I have a few questions regarding PE recruiting when you start as BB 1st-year analyst.
1. As a recruiting process is getting faster and faster, I was wondering when would be the right time to prepare for LBO modeling. Would Senior-spring be a good time? If so, how would you recommend prepping for LBO modeling test (any suggested materials to prep for it)?
2. Since there is lesser time to get involved in deals, do you still recommend adding BS to deal exposure?
3. If I am not thinking of going into MF and aiming safely at middle-lower MM PE, is job searching still the most effective through headhunters or through cold-emailing?
Thanks a lot!!
1) It shouldn’t really take that long to prepare, assuming you know basic accounting and finance. Maybe do it in the few weeks before training/the job starts so you don’t forget too much. Look at our courses and guides for examples. LBO modeling is the easiest part of the process because once you do enough models, you can do them in your sleep. But you can’t do anything about your GPA or university at this stage.
2) If you’re asking whether or not you still have to exaggerate pitches and make them sound like deals, yes, pretty much, because these firms will still ask about deal experience. Another option is to reference deals you worked on in internships.
3) You will still have to go through headhunters because even those types of firms use on-cycle recruiting. Cold emailing could work in some cases, but more so for actual small firms (i.e., below “middle market”) or for newer/startup funds that are not yet plugged into recruiting.
Hi,
Which degree do you believe is most relevant for investment banking (M&A) Accounting & Finance or Economics? I already have some experience in M&A while completing an internship at EY and Assurance at PwC during the summer between my first and last year of Sixth Form in the UK. I know that going to a target university is important but what degree would be best if I was to go to a target university.
Thanks!
https://mergersandinquisitions.com/investment-banking-major/
Accounting & Finance, by far.
Would it be possible to break into p.e from asset finance? Thoughts on exit ops or would it be possible to leverage into full time IB position? TY
Specifically air finance (aviation capital)
It’s possible but unlikely. Maybe you could do it if you focus on infrastructure PE or something else that invests in the assets you focused on.
Hi Brian,
Which firms do you consider to be upper MM PE in the US and in London?
Thanks
I would say any firm with between $100 million and $5 billion in AUM is “middle-market,” though maybe you could set the lower limit at $1 billion (https://www.cohnreznick.com/sites/default/files/images/emails/content/newsletters/PE_IndustryOutlook_Momentum2014FINAL.pdf). There’s a decent list here: http://www.pionline.com/article/20150406/PRINT/304069998/big-private-equity-managers-ruling-the-roost (Maybe anything with less than $10 billion falls into that category)
Brian,
People always say banking has a steep learning curve but what do you really learn in banking? Cleaning files for data room? Buyer log? Due diligence tracker? Am I getting really awful experience or this is normal in banking?
In addition, why some junior banks get to go meetings with senior bankers and work on complicated financial models, while some just working with PowerPoints all day? I understand the staffer assigns projects very fairly but each project leads to a different outcome. Is there anyway I can help myself learning more in banking? I really want to learn as much as I could but so far I feel I have been doing all administrative/research work and I hate it.
Thanks.
Yes, a lot of it is nonsense and you often don’t do much real work on the job. Spending most of your time on random administrative tasks is quite common. This is why many people work at large banks for 2 years and still don’t know how to build a simple 3-statement model at the end.
Some of the project assignments are random, some are based on existing relationships, and some are based on who asks for what. So you need to speak up and ask for more, or learn on your own in your downtime.
Thanks Brian. Would you recommend learning financial modelling at my downtime? Say watching the M&I modelling videos?
Also, I want to speak up and ask for more, but how can I do so? Shall I schedule a coffee chat with my staffer? I don’t want to say I only want live deals with modelling experience / more opportunities to go to client meetings. I work very hard on my current assignments but I will never stand out no matter how well I do for the due diligence tracker and buyer log. I read your articles on how to move up for each level in banking, but do you have any tips that I can use?
Yes, you could do that. You don’t need to schedule anything, just casually mention that you want to do more deal work. Also, why are you leaving comments under different names and email addresses and pretending to be different people? If you have so many questions, please gather them into one email and send them to us.
Hi Brian,
Thank you for all your great articles. I go to Berkeley right now, and going to graduate early with a normal GPA (3.65) before joining Jefferies in their Tech IBD group in SF. How do you think I should go about PE recruiting if I want to get into mega-funds / upper-middle-market funds?
Thank you so much again, Brian.
If your targets are mega-funds or upper-middle-market funds, you should make a lateral move to a bulge bracket or elite boutique and start the PE recruiting process there.
I’ve seen Jefferies people at HIG, Vista and other growth equity/VC funds – not sure whether you consider those upper middle funds. I am in the same boat as Jessie – started in a middle market bank and was curious how long I shall wait for the transitioning. If I move a few months before the bonus season, can I negotiate with the new bank/old bank for my bonus?
Yes, it happens, but it is not that common. Some larger funds do use off-cycle recruiting occasionally, which is how you might end up there anyway. Most people transfer around a year into it. I doubt you will be able to negotiate for your bonus since you have very little power in that situation unless the bigger bank desperately needs someone ASAP.
So people will normally lose their bonus if moving to another place? I started in August and wanted to move to a bigger bank. However, my firm will bonus at the end of Jan. Therefore, if I move from August to December, I would likely get nothing…
Yes, it’s possible that you will lose the bonus. It depends on the bank and move. That is a part of life when you move to somewhere bigger.
Thank you so much, Brian!
Another quick question, Brian. What does it take to get headhunters’ attention and finally get the offer from an upper-middle market fund or a mega-fund if I’m at Jefferies? I understand that it is untraditional, but it would be great to hear from you still.
All you can really do is get a referral from someone the headhunter has worked with and earned a commission from in the past, ideally a 2nd year analyst at your firm or someone else you know at another bank. Headhunters pay attention when there is a proven track record of commissions. Then, you have to find a firm that is somehow using off-cycle recruiting even though it is a bigger firm… not likely, but it happens.
Hi Brian,
As you know summer analyst recruiting has been starting ridiculously early, so what should I do when I’m going to a target school in NYC? (currently sophmore) Should I just apply online as fast as possible when the position opens or wait for OCR? I heard in WSO that some BB fill their initial around with online application then go on with OCR. Is this true?
Cheers for the great content by the way.
You may want to see this article that covered recent changes for summer recruiting:
https://mergersandinquisitions.com/investment-banking-summer-internship-recruiting/
I have read the article many times but still doesn’t answer my question: should I wait until OCR to submit my resume through my school or finish the online app right away as soon as it opens in the summer? Logic tells me that banks will look at OCR online apps more than normal online apps for SA.
Thanks in advance for answering questions :)
If your school has formal OCR, it’s better to apply through that specific online application even if it opens later. I’m skeptical that non-OCR applications get priority, even if they happen to open earlier.
Hi Brian,
Very good article, thank you.
One question – do you know if the same process applies to London? Or is this US-specific? I was not aware that it was as structured.
Thanks
It is less structured in London and tends to start later (January – March). Mega-funds still use some form of on-cycle recruiting, but not to the extent described here.
Brian,
Will you have an associate version of this? What is the process for an associate who want to be at a mega fund (eg. KKR)?
Nikki
There is no process for associates, as mega-funds focus almost 100% on recruiting Analysts. Please see:
https://mergersandinquisitions.com/investment-banking-associate-exit-opportunities/
Thanks Brian. It seems like networking works better for associates and it’s a random process…
That’s not really the best way to describe it. There IS no “on-cycle process” for Associates. So it’s not that networking works better – it’s that nothing else works because headhunters will rarely, if ever, approach you if you’re already at the Associate level. People do still exit to buy-side roles, but usually at smaller / startup funds, and usually only after a lot of time and effort spent networking.
Hey Brian,
I understand this process is geared toward analysts at BB and EBs, but was wondering if headhunters even reach out to analysts in a technical group (ie restructuring, levfin, etc) at top MM banks in NYC. Do analysts with this background even stand a chance? What is the process like for these analysts?
I’m not 100% certain of that one, but I don’t think that many headhunters reach out actively. The ones who do reach out are more likely to present opportunities at other banks or normal companies rather than buy-side roles. So if you want to participate, you have to be very proactive and get referrals to headhunters from your friends at other banks.
You can definitely win buy-side roles coming from MM banks, especially if you’re in a good group, but, realistically, you are probably not going to get into a mega-fund coming from there (I’m not sure you’d really want to do that,though…).
Wow the exit opps are so different than houston energy upstream e&p banking. Straight asset sales and no LBOs. Very specialized and pretty much exit opps are more energy PE or an oil corporation. Wish I had started in NYC but I don’t think Texas schools would cut it when competing with Ivies
Yes, Houston is different. We’re covering it in an upcoming interview! And yes, the exit opps are very specialized and it is almost impossible to move to a non-energy buy-side role afterward.
Hi Brian,
Thanks for the great interview, outstanding content as always. I recently received an offer to join a top BB (GS/MS) for the summer and really want to be placed into the top group at the bank (GS TMT/MS M&A). I know there is a sell day process happening around Feb/Mar but I was wondering if you had any advice on how to maximize my chances beforehand and how these processes usually work.
Thanks a lot!
Thanks! We covered this topic before: https://mergersandinquisitions.com/investment-banking-sell-day/
Basically, you have to contact as many people in the group as possible in advance so that they already know you when you arrive there.
Hey Brian,
Thanks for the great article. Good to know what to expect once the clown fiesta starts.
I have a question: What do you think my chances look like if i want to move to a megafund like KKR or Apollo? I am joining a top industry group at a BB (MS/GS/JPM) and I’m probably graduating summa cum laude but from a very nontarget school.
Do you think my student background will hold me back much?
Thanks! I think you still have a shot at those funds even if you went to a non-target. They tend to penalize you more for being in “the wrong group.”
Totally agree. It’s all about the group and bank.