IB & PE Interviews: The Trials by Fire and Water

So you have finally received that interview call from the PE firm in Mumbai. Great, congrats! But now you’re worried sick about what exactly they are going to grill you on. Will you be asked to pitch stocks or be required to build a full-blown DCF model in an hour?

Well, if you know what PE is, then you know you won’t be pitching stocks in the interview; but yeah, that DCF model with multiple scenarios is fair game. And now that I have successfully scared you about IB/PE interviews (if you still aren't scared, you should be – thinking back on my own interview experiences still gives me the chills), let’s talk about just what happens in IB & PE interviews. In Part II, we’ll see how we can come out of these grilling sessions alive and in one piece.

Like any other industry, there’s no fixed rule for the interview process. However, there are certain parts of the interview process that you will find in all IB and PE interviews. In keeping with the theme of the blog, this post will give you a true sneak-peak into the interview process at most firms.

Read on to know all about IB & PE Interviews: The Trials by Fire and Water.

Do you even fit, brah?

While the interviewer is probably not gonna ask if you even lift, bro; but yeah, before anything else, he’s going to make sure that you fit in with the firm. If you haven’t caught on yet, I’m talking about the behavioral interviews, generally termed as “fit interviews”. While you have this part in every interview in every industry; in finance, a disproportionate focus will be on whether you fit in with the firm and your prospective team mates.

That’s because only in finance you will spend most of your waking hours with your team mates for the next two years. So if you’re gonna be spending that amount of time with the same set of people, they need to make sure that you’re not gonna blow your fuse over whose visiting card looks better.

Therefore, the interviewer will ask all sorts of background related, seeming innocuous questions, but which are designed to judge your personality. For instance, if your team comprises of a bunch of simple minded, down-to-earth beings and you come across as a party animal, the firm will take that into account while making the hiring decision, and if positive, which team to put you in.

DCF, WACC, LBO and the alphabet soup

When it comes to technical questions, top-tier firms are known to be about as gentle as sandpaper with the candidates. Networking and people skills will get you a seat at the interview table, but no further. Yes, smaller places are more genial with entry level candidates when it comes to technical questions, but there’s still no getting around the fact that you really, really need to know your basics to stand a chance at cracking those IB interviews.

While an entry level hire might not be asked to describe the process of building an LBO model, you still need to have rock-steady fundamentals. If you are experienced, you might as well be asked to build a whole LBO model. Financial analysis techniques like NPV and IRR, basic concepts like WACC are a must-know for any candidate. So CA students, make the Advanced Financial Management book your bible if you are serious about getting into finance.

The later rounds of interviews with senior executives tend to be more behavioral and general in nature. A Partner or an MD usually won’t bother about whether you know how to calculate the WACC for running a DCF, but if anything, will focus more on your general awareness level about the industry. But again, there is no fixed rule. If the MD is having a bad hair day or you are simply unlucky, you could very well be asked about whether to use Levered or Unlevered Beta in a Comps Analysis.

Case studies

Case studies are extremely common in both IB and PE hiring process. It can be a formal exercise wherein you will be handed a sample information memorandum and/or other documents pertaining to a company and 30-60 minutes time, based on the content. You’ll be required to analyse the given content, come up with a “Go / No - go” investment decision and justify the same.

Another way is that the interviewer will give you a hypothetical situation during the interview itself and you will be required to give a decision on the spot, along with justifications. The important thing to remember in this situation is that the interviewer is not looking for the “right answer”, but he will be more interested in knowing your thought process and reasoning behind your recommendation.

Industry analysis

A variation of a case study is an open book industry analysis. Instead of a company, you will be given a particular industry (or if you’re lucky, a choice of industries) and will be asked to prepare a memo and/or presentation on the same. You will be given access to the internet, or sometimes even to databases that the firm subscribes to and will be required to do your own research. On the basis of your research, you will have to give a “Go /No – go” investment decision either in the memo or presentation.

Excel monkey test

Or, the modeling test. Modeling tests are not very common in IB but are the norm in PE hiring process. They can range from a short test of 1 hour to a full blown 8-hour modeling test. In the shorter format, you would be required to build a basic model of sources and uses, Income Statement, Balance Sheet, Cash Flows and your entry and exit multiples. In the longer format, you may be required to use and justify assumptions, variable funding options, sensitivity analysis and use of multiple methods for validating your investment decision. Yeah, my mind still gets boggled at some of these terms. Occupational hazard.

IB and PE interviews – two sides of the same coin?

I’m sure you didn’t fail to notice that I have been using IB and PE interchangeably throughout this post. That’s because while IB and PE hiring process is indeed quite similar, but there are still some differences. They’re like the long lost twin brothers of Indian movies who develop their own unique quirks.

Fit vs. Tech – Traditionally, PE focuses much more on the fit questions. The reason is that PE teams are very small and you’ll be spending a huge amount of time with the team. Thus, it is imperative that you fit in well with everyone. The same reasoning applies to IB also, but teams are much bigger and thus, focus on the fit part is comparatively lesser.

Duration – Generally, PE interviews are much longer than those for IB. The reason is that since PE firms require very little manpower, they can be extremely choosy about who they accept. Thus, based on your background and performance in interviews, the PE hiring process can stretch on for up to three months. One of the Associates in my firm was interviewing for five months before he was hired. On the other hand, IB hiring process is shorter and the deal is usually sealed in a under a couple of months’..

Who you meet – PE firms are generally much smaller and their manpower requirement is much lesser than IB. It is common to see hundreds of millions of dollars being managed by a team of less than 10 people. Thus, in PE, you’ll usually get to meet everyone from the first year analyst to all or most of the partners before they hire you. This only reiterates how important the fit component of these interviews is.

On the other hand, in IB, the organization size is generally much larger than PE and it would be unfeasible, even unnecessary for you to be introduced to every senior executive. Consequently, your meetings will be restricted to associates, the senior executives (VP’s, MD) responsible for your team and all of your prospective team members.

Excel monkey test – As I said earlier, it’s usual to find modeling tests in IB interviews also, but there are quite a few places that might skip them. But in PE, it would be unheard of to have a hiring process that does not include seeing how pretty your excel sheets look.

And that brings us to the end of this post, folks. Hope I haven’t scared you off a career in finance. Don’t lose hope, because in the next post I will tell you all about Acing the Trials by Fire and Water. Stay tuned!