GUEST COMMENT: How to misjudge, and then disastrously misfire in a private equity interview

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It is a thing of Torres-goal-scoring-beauty to pass on to the next level of interviews for a job in private equity. And just as with Chelsea’s over-priced player, it doesn’t happen often.

The reason why getting a job in PE is so hard is simple. Like a night-club, it’s strictly one in, one out. Someone needs to either retire or move to another firm in order for a new vacancy to open up. In City parlance, it’s a zero-sum game.

The days when firms were growing and needed to fill their boots with juniors from the sell-side are no longer. For a PE firm to grow it needs to raise new capital, and the current fund-raising environment is sluggish, at best.

Once in, it’s hard to convince people to leave a buy-out fund. Incentives are much longer term than in a hedge fund, with carried interest (performance fees charged on profitable investments) often vesting over eight to ten years. If you’re not there when the carry vests, you don’t get paid.

The result is that PE has become a small club, where members can pick and choose new entrants. And like any exclusive club, fit is the main criteria. If they don’t like your face or don’t think they would enjoy working with you for long hours over many years, you don’t have a snowball in hell’s chance of getting in.

So how does one correctly crack the PE code? In my view, which is based on our own firm’s informal hiring policy, as well as evidence from friends who work across the space, you need to divide the sector in half. Once you realise that there are fundamentally two different kinds of PE funds, life becomes much easier.

Private Equity Fund Type One: The mid-market buy-and-build shop

What it’s like working there:

Stuffed with ex-accountants, which is reflected in the strictly 9 to 6 working lifestyle. Friendly, family-oriented atmosphere; expect to get to know your colleagues’ husbands or wives and their kids. Long-term commitment required, even by the standards of the industry (a friend of mine has a nine-year minimum vesting period for his carried interest). The focus is on buying businesses, making them work better through operational improvements, and consolidating the sector by merging together various assets bought at cheap valuations, so accounting skills are key.

Their ideal candidate:

Qualified accountant with a first-time ACA pass. Red-brick UK university graduate, although doesn’t have to be Oxbridge. If you’re from outside the UK, a top ten university background, or top five if from a smaller country. Having a decent golf handicap will help, since business relationships in the mid-market space are often forged over time, on Saturdays with a nine-iron, and in the pub afterwards.

Who shouldn’t even bother applying:

People who have never lived in Europeand have no understanding of European working culture. Bulge bracket investment bankers (top-ranked boutique firms like Rothschild are fine though).

Private Equity Fund Type Two: The billion-dollar buyout shop

What it’s like working there:

Tough as nails. Expect the same work life balance as investment banking, since most of these firms are staffed by alumni of large banks. Accounting skills are therefore less important than financial engineering; i.e. the ability to model in Excel new and innovative capital structures to finance deals. Since the sector is dominated by a number of large firms who still have plenty of capital to invest, competition for assets is high and this is often the only differentiator in a bidding process.

Their ideal candidate:

Oxbridge or Ivy League graduates who have gone on to cut their teeth in American investment banks. Preference for M&A teams, and, increasingly, restructuring groups. A love of red meat doesn’t hurt either.

Who shouldn’t even bother applying:

Accountants, or anyone else who requires more than six hours of sleep a night. Vegetarians.

The author has worked in Private Equity and investment banking for close to a decade

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