Private equity interview questions
Private equity interviews go deeper than banking ones. Expect paper LBOs, timed modeling tests, case studies and one question above all: would you invest, and why? Funds want to see investment judgment, not just modeling.
Know how a fund works (GPs, LPs, the '2 and 20' fees, carry and the hurdle) and the levers that create returns. Then practice talking through a company as an investment: the market, the business quality, the returns and what could go wrong.
Private equity questions
Basic
What's the difference between IRR and MOIC?
A strong answer covers
- MOIC: total money back ÷ money in
- IRR: annualized return that accounts for timing
- Same MOIC over a shorter time means higher IRR
- Funds track both
Intermediate
Walk me through how you'd decide whether to invest in a company. What would you diligence first?
A strong answer covers
- Market: size, growth, competitive position
- Business quality: margins, recurring revenue, customer concentration
- Returns: entry price, leverage, value-creation plan, exit
- Key risks and what would break the thesis
Intermediate
Pick a public company you'd take private. Why would it work as an LBO?
A strong answer covers
- Stable cash flow and modest capex
- Undervalued versus intrinsic value
- Clear operational improvements
- Realistic exit path and key risks
Intermediate
How does a longer holding period affect IRR and MOIC?
A strong answer covers
- MOIC can rise as more debt is paid down and EBITDA grows
- IRR often falls because returns are spread over more years
- Funds balance the two
- Example: 2x in 3 years ≈ 26% vs 2x in 5 years ≈ 15%
Intermediate
What is a management rollover and why do sponsors want it?
A strong answer covers
- Managers reinvest part of their proceeds in the new deal
- Aligns incentives with the sponsor
- Reduces the equity check
- Often paired with an option pool
Advanced
Pitch me a company as an LBO candidate.
A strong answer covers
- Business overview and why it fits LBO criteria
- Rough entry price, leverage and returns
- Value-creation plan
- Key risks and exit options
Advanced
Returns came in at 18% IRR and the hurdle is 20%. What levers would you pull?
A strong answer covers
- Lower the entry price or improve terms
- Increase leverage within safe limits
- Underwrite stronger operational improvements or add-ons
- Shorter hold, dividend recap, or higher exit multiple only if justified
Advanced
How does a higher interest rate environment change LBO returns and deal structure?
A strong answer covers
- Higher interest cost reduces cash for paydown
- Lenders allow less leverage, so equity checks rise
- Lower IRRs push sponsors to pay lower multiples
- More private credit and creative structures like preferred equity
Advanced
What are the main differences between growth equity and a buyout?
A strong answer covers
- Growth equity: minority stakes, little or no debt
- Buyout: control, significant leverage
- Growth bets on revenue growth; buyouts also use debt paydown
- Different risk and return profiles
Quick quiz (12 questions)
Who provides most of the capital in a PE fund?
- The GP
- Limited partners ✓
- Portfolio company management
- Banks
LPs commit the bulk of the capital; the GP commits a small slice.
Carried interest is typically:
- 2% of assets each year
- 20% of profits above a hurdle ✓
- 50% of the management fees
- A fixed salary for the partners
Carry is the GP's share of profits, usually after LPs hit a hurdle return.
Which is NOT one of the three main LBO return levers?
- EBITDA growth
- Multiple expansion
- Debt paydown
- Higher management fees ✓
Fees pay the GP; they don't create deal returns.
What does GP stand for in private equity?
- General partner ✓
- Gross profit
- Growth plan
- Global portfolio
The GP is the firm that manages the fund and makes investments.
In private equity, what does LP stand for?
- Limited partner ✓
- Leveraged position
- Long portfolio
- Loan payment
LPs are the investors who commit capital to the fund.
Which of these is a typical LP (investor) in a private equity fund?
- A portfolio company
- The fund's analyst
- A pension fund ✓
- A credit rating agency
Pensions, endowments, insurers and sovereign funds are classic LPs.
Large-fund on-cycle PE recruiting is mainly run through:
- University career fairs
- Headhunters ✓
- Cold applications
- LinkedIn ads
Search firms coordinate the on-cycle process for large funds.
The most common PE interview test is:
- A coding challenge
- An LBO modeling test ✓
- A personality quiz
- A sales pitch
Paper or timed Excel LBOs are standard.
The classic pre-MBA path into PE is:
- Straight from undergrad into a partner role
- About two years in IB, then PE associate ✓
- Ten years in consulting before applying
- Starting a company first, then joining PE
Banking analysts are the main feeder pool.
What is 'on-cycle' PE recruiting?
- A summer internship program for college juniors
- A fast, headhunter-run process at large funds for future associates ✓
- A public job board where funds post openings
- A recruiting process run by schools each fall where funds interview MBA students on campus
It's compressed and often happens early in an analyst's first year.
Who usually runs on-cycle recruiting?
- Universities and their career offices
- Headhunters (search firms) ✓
- Regulators that oversee the funds
- LinkedIn's automated job system
Funds hire search firms to coordinate the process.
What is 'off-cycle' PE recruiting?
- Hiring that breaks industry rules
- Rolling hiring when a fund needs someone ✓
- Hiring open only to MBA graduates
- Hiring that happens late at night
Middle-market funds often hire this way.
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