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Working in PE is one of the most prestigious opportunities anyone would want to snatch, though it can be a challenge to break into it, especially if you don’t know how to show that you have a true passion for this field. “Why private equity?” is one of the most common questions asked during PE interviews, yet many struggle to avoid giving generic and unstructured answers. But worry not – take a few minutes to check out these tips to ace this interview question and increase your chances of progressing into the next round.
1. Why Private Equity? – Interview Question
“Why private equity?” is undoubtedly the most frequently asked question during a PE interview. Whether it is the on-cycle or off-cycle recruitment process, PE firms’ interview process often consists of multiple rounds with different levels of management and common interview topics. First-round interviews are often held on campus or by phone or video conference. If you pass the first screening, you’ll be invited to attend follow-up rounds at the firm’s headquarters. Candidates might encounter different types of questions include:
- Fit/background questions
- Technical questions
- Deal/client experience questions
- Firm’s strategies and portfolio questions
- Market/industry questions
- Complete case studies and modeling tests.
If you want to learn more about the recruitment process of private equity, check out our private equity internship guide.
Throughout the interview process, regardless of the phase, you may anticipate why you choose to work in PE. Interviewers want to hear your true motivations behind applying for this job. Playing it by ear might tempt you to make some unfortunate slips that can cost you the chance of a lifetime. Common mistakes interviewees make in giving a response to this question are:
- “I am doing this for the money”
- “It’s a much better lifestyle than investment banking”
- “I choose it because my peers are doing it”
- Or discussing money, hours, lifestyle, and prestige.
While there’s no correct way to answer “Why private equity”, you should refrain from mentioning the cliches and instead emphasize good contrasts between PE and banking, or between PE and whichever industry you’re transitioning from (corporate development, consulting, other buy-side jobs, etc.). We will now further elaborate on what interviewers really want to hear when asking this question.
2. What Do Interviewers Want to Hear?
2.1 You understand the industry
Private equity is no doubt a complex industry that is very picky when it comes to recruiting the right people. Though it has a significant effect on today’s financial sphere, few are fully aware of its ins and outs. Therefore, it is important to understand private equity and the attributes of those who are fit for working in the business.
Moreover, private equity firms can be classified into different types: distressed PE, real estate PE, leveraged buyout (LBO) PE, growth equity, etc. It’s important that you have a grasp of the distinctions and choose the type which you find fascinating and would flourish in. People usually use their previous experience in M&A, real estate or LBO to transition to corresponding types of private equity since they have an upper hand.
The reality is that you can expect fewer working hours in the PE industry since the hours are a bit more relaxed compared to investment banking hours (though it is still quite intense); however, this is not a competitive advantage and NOT something interviewers want to hear. During office hours, analysts will be expected to do a lot of grunt work.
Though the situation will improve when you move up to higher positions like associate and senior associate, you should show that you don’t hesitate to take charge of repeated menial tasks when presented with such opportunity.
2.2 You understand the role
A well thought out answer should include a solid professional rationale. Make sure that you have a grasp of the aspects of your work for the position and know what the hard and soft skills required for the position are. To have a complete understanding of the role, read through the job description carefully and learn by heart all the requirements to get into the industry.
To put it simply, a junior analyst working in PE will spend most of their time working on financial modeling and valuation (DCF, Comparable Company Valuation, EV/EBITDA, ROE, ROA, etc.) and supporting associates on deals. Compared to investment banking analysts, as said, the scope of work is not significant. As analysts progress to high levels, their contribution will be much more respected and appreciated. However, to be promoted to the associate level, the analyst must be adept at technical skills while perfecting the ability to read and interpret financial models. Besides, associates must master their communication skill as they are required to meet with clients to perform deal sourcing.
You can read more about the career of PE associates and analysts here.
2.3 You understand yourself
Lastly, interviewers also would like to learn if you are truly aware of your capabilities. Be truthful and straightforward with what you are and are not capable of, which you would like to improve in the working environment of the PE firm. This part will vary with each candidate, but make sure that you tie the firm’s needs and strategy with your personal skills in your answer.
Although PE is characterized by shorter working hours, less pressure, and less bureaucracy (compared to investment banking), it is still a tense and stressful work and a response to the “Why private equity?” question would also demonstrate your willingness to commit. Besides, a less bureaucracy-laden environment also means that there are fewer levels of revision, so you may be expected to be more independent at work and able to self-evaluate your outcome.
Step 1: Start with a key message to show your passion
First of all, demonstrate your knowledge for the PE industry and your passion for working in the firm. It would be best if you can name some of the comparative advantages of working in private equity before mentioning particular positives of the firm that appeal to you. Some factors of the PE firm you can consider to mention include:
- Firm’s strategy: positioning and client focus
- Recent fundraising, expansion, restructuring: new partners, expansion, etc.
- Recent or most popular investments or exits
Step 2: Explain your background and why pursuing private equity
Next, match the firm’s strategy with your abilities by explaining relevant background information. For instance, you can share experiences in sectors that are related to the firm’s client focus or any business experience that helps you to realize your passion for PE.
Step 3: Back up with finance-related experience
Lastly, add in some finance-related experience to further back up your answer and show what you do to meet requirements for a private equity role. Don’t forget to add a compelling conclusion to have a persuasive ending.
4. Best Sample Answers for “Why Private Equity?”
While undergraduates often go for junior analyst spots, graduates and career switchers, who have had a track record of working with financial modeling and valuation and previous experiences with M& or LBOs, opt for higher positions like associate and senior associate. That’s why interviewers might expect different answers to this question based on your background. With this in mind, we come up with different samples for undergraduates and graduates/career switchers.
Disclaimer: Though these are good examples for you to prepare for this interview question, you should definitely tailor these based on your own experience so your response appears more personalized and unique.
4.1 Samples for undergraduates
Key message
“I want to start off my career as an private equity analyst and I believe that this firm will be a great place to start because you offer great learning opportunities for newbies with the track record of working with large brands and making multiple successful investments.”
Background
“Since my freshman year, I was exposed to finance and investment. I also joined my highschool and university’s investment club to learn how to choose the most profitable stocks and bonds and make data-driven decisions.
Day by day, my interest in investment and finance became stronger. I got the chance to meet a lot of professional bankers and private equity analysts during networking events and on-site workshops, which further fueled my passion for working in finance and private equity in particular.”
Finance-related experience
“I know for sure that I want a career in private equity. That’s why I signed up for classes in financial modeling, valuation, and strategic analysis. These classes gave me the necessary technical skills and solid foundation to pursue a position in PE.”
4.2 Samples for graduates and career switchers
Key message
“I really want to work in private equity and specifically this firm because of the steep learning curve and extensive exposure to high-profile transactions.”
Background
“I was lucky enough to be able to have some past working experience at ABC bank where I was able to learn a great deal about the ABC sector. I’ve come to the conclusion that the aspects that I like most about my work are learning about new firms and sectors and truly comprehending what drives their long-term development and success. That is also why I want to move into private equity because you get to focus on finding out new methods to build value in the long run, as well as always looking at new sectors and prospective firms to purchase.”
Finance-related experience
“The MBA program and my former workplace has equipped me with business and finance know-how, as well as technical skills like financial modeling and valuation. Besides, I believe that my past experience with M&As and LBOs would be valuable assets to the firm.
I see myself working for the energy sector in the next 5 to 10 years, which matches perfectly with the firm’s strategy. That’s why I want to work for this firm.”
5. Tips and Techniques to Ace the “Why Private Equity?”
Tip 1: Be straightforward
Recruiters do not want to spill the interview into nights after a hard-working day, so keep your answer simple and direct to what they want to hear. It’s best to keep your answer in 3 to 5 sentences and under 30 seconds.
Tip 2: Personalize your answer
Interviewers do not really favor responses that are generic and based on cliches. Therefore, we recommend you make custom answers that are relevant to your own experiences and educational backgrounds. Look for unique responses that are not only true to you but also great to the ears.
Tip 3: Talk in a structured manner
Follow our steps for a well-structured question. Making it up as one goes along may lead you to a messy answer that gives interviewers an impression of an underprepared and absent-minded candidate.
Tip 4: Back up with strong evidence
A convincing answer needs to be supported by strong evidence. The more granular your answer is, the more convincing it will be.
Private equity is undeniably a high-profile industry which every year hundreds and thousands of candidates wish to have a career in. This requires you to have a thorough preparation to shine in the interview round. If you want to know more about the structure and samples to answer private equity interview questions, don’t hesitate to check out our guide here.
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