The simple reason why everyone flops in private equity interviews

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Private equity may be the most difficult sector to break in to in all of financial services. European PE firm Terra Firma is said to receive 250 applications for every available role. Search firm Private Equity Recruitment (PER) says it receives around 2.5k resumes each month and helps facilitate roughly 250 hires a year.

So what differentiates the needle from the haystack? It’s not the CV, believe it or not. Most resumes include prestigious universities and top investment banks and consulting firms, says Gail McManus, founder and managing director at PER. What cuts the crowd down to a select few is a rather simple mistake that many candidates make. They expose themselves as someone who doesn’t understand the essential nature of private equity: buying a business.

McManus gave me the test that she gives many of her recruits, noting that my mother would have a better chance of passing than most candidates with a deep background in finance who are prone to show it off. “You work at a PE firm. You are thinking of buying a small independent chain of coffee shops in New York. What is the first thing that you do?” she asked me.

Attempting to think analytically, I ventured a guess: “take a look at their profit and loss statement?” Wrong. Starting to sweat, I tried again, harnessing the wisdom of my mother, a retired fundraiser for my local high school. “Go there and order a cup of coffee?” Bingo.

“It’s not a spreadsheet exercise,” McManus said. “Businesses are real entities and you need to know what makes them tick.” What does the coffee taste like? How is the service? What about the customers?

The mistake that most investment bankers make is a natural one considering their background: they try to sell the business to the interviewer, usually while wearing rose-colored glasses. “You need to think and talk like a buyer in a cynical yet balanced fashion,” McManus said. It can be a great opportunity but there are always caveats.

Consultants should fare better than investment bankers but they tend to talk too much, focusing on angles that don’t really matter, McManus said. “Act like a buyer and pinpoint the most important things.” Consultants also tend to fall short when it comes to strong financial modeling skills – a prerequisite for the job.

McManus ended our conversation confirming why I’ll never be hired by a private equity firm, if that weren’t already a foregone conclusion. “Go to a restaurant, order a meal, work out the average price per head, predict what the crowd will be like on a Friday, identify which staff member is stealing vodka and when you’ll need to refurbish the place,” she said. “If you don’t do that naturally before cocktails arrive, then the job probably isn’t for you.”

Culture fit is a must

Robin Judson, the founder of recruitment firm Robin Judson Partners, offered a few other pieces of feedback from her private equity clients. Don’t talk about compensation during early interviews – you’ll come off like a mercenary, she said. Indeed, culture fit is particularly important at private equity firms, which are much smaller and more collaborative than investment banks. Some firms employ an imaginary “beer test” or “flight test,” where senior members imagine if they would enjoy having a drink with the person or if they could survive a long plane ride with them.

Therefore, never mistake being casual or cocky with being confident, Judson said. Private equity firms want to like you as much as they trust your capabilities. With thousands of resumes thrown their way, PE firms have the luxury of requiring both.

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