Should you focus on showing off your model building skills or boast your money-making skills to the firms in PE interviews? This is an ongoing debate among private equity aspirants. Can liberal arts graduates make a sustainable career in private equity? This and other similar questions are swirling around in every private equity aspirant’s mind.
For the majority of finance graduates, working in private equity is a dream come true. Investment banking analysts and other finance professionals are constantly striving to get into private equity firms.
Most PE firms hire recruiting firms to fill vacant PE roles. They are the first point of contact between aspirants and private equity firms. Who could be a better person to know about recruiting?
Below is an excerpt from an interview with a recruiter.
What do private equity firms look for in candidates?
The three essential qualities that you need to show to interviewers:
1. How you helped your firm make money in the past.
2. How you saved them money.
3. How you improved a process.
Understandably, there’s a lot of focus on building models in private equity, but salesmanship is equally important for a sustainable private equity career. The ability to bring business for the firm, make money for the firm (in other words) is highly required to excel in a PE role.
Talking about models in PE interviews is fine, but candidates should always find a way to tie their effort back to business results. Guest recruiter expresses, “most people come and start rambling about deferred tax liabilities and their hyper-advanced LBO models. Most VPS and MDs don’t even remember how to build a model or use Excel. They understand how to make and save money. So candidates should re-frame everything in that context”.
How do people who have no “business results” to show approach the above question?
Often people spend a lot of time working on deals, but nothing comes through. In such cases, candidates have nothing to tie back to results. In such situations, it’s better to talk about potential results.
For instance, if you worked on an acquisition deal, even though the deal didn’t advance to the final stage, you can talk about how you saved money by crossing off acquisition leads that save money. Similarly, if you worked on a merger deal, you can talk about how your model and its finding that got your client a higher price if they were selling or a lower price if they were buying.
Firms want to hire candidates who can make or save money. Is this true for non-partner track positions as well? Many times candidates want to work for 2-3 years and move to business school. So does it really matter?
Jobs in investment banking and private equity are unpredictable. Nobody knows where you can be 10 years down the line. If you’re a prospective candidate for a firm, enquiring where you will be after 10 years at a firm is futile. The growth in a private equity career follows a simple rule: you make money for the firm, you move up. If you don’t, you’re out.
What are other mistakes candidates make when interviewing for a PE job?
The following are a few common mistakes that people make:
1. Not proving that they can evaluate and run a deal by themself.
2. Focusing too much on features and less on benefits
3. Relying on pedigree rather than results
A private equity investment professional evaluates hundreds of deals in a year. Of which 2-3 deals materialize. Directors and principals don’t have the time to flip through every deal. So they look for candidates who understand the intricacies of deal and can do everything by themself.
Many candidates sell themselves based on their degree. For instance, someone might say, “I have a 4.0 GPA from Harvard University”. This doesn’t work. This a feature, not a benefit that U.S. private equity firms can capitalize on.
Several candidates from the Ivy league tend to perform poorly and expect the world to themselves. Candidates from less privileged backgrounds tend to perform better.
How can liberal arts students position themselves for a private equity career?
Private equity jobs aren’t completely about analytical skills. It demands a lot of salesmanships. Having a liberal arts background can be advantageous in this regard. Focus on telling a convincing story around numbers to win deals and negotiation.
In the interviews, however, don’t say analytical skills is your weakness. No matter how tempted you are to say that. Instead, pick something qualitative and prove how you improved over time.
Taking a professional private equity certification like Chartered Private Equity Professional CPEP) from the United States Private Equity Council (USPEC) is highly recommended. This certification equips you with all the necessary skills and knowledge required to effectively work at a private equity firm. You will gain technical skills – model building, financial statements, CIMs (Confidential Information Memorandum), as well as salesmanship skills, increasing your chances of getting hired.