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THE MEDIAS WATCHING VAULT! HERES A SAMPLING OF OUR COVERAGE.For those hoping to climb the ladder of success, [Vaults] insights are priceless. Money magazine The best place on the web to prepare for a job search. Fortune [Vault guides] make for excellent starting points for job hunters and should be purchased by academic libraries for their career sections [and] university career centers. Library Journal The granddaddy of worker sites. US News and World Report A killer app. The New York Times One of Forbes 33 Favorite Sites Forbes To get the unvarnished scoop, check out Vault. SmartMoney Magazine Vault has a wealth of information about major employers and job-searching strategies as well as comments from workers about their experiences at specific companies. The Washington Post A key reference for those who want to know what it takes to get hired by a law firm and what to expect once they get there. New York Law Journal Vault [provides] the skinny on working conditions at all kinds of companies from current and former employees. USA Today

VAULT GUIDE TO

PRIVATE EQUITY AND HEDGE FUND INTERVIEWSALICE DOO AND THE STAFF AT VAULT

Copyright 2009 by Vault.com, Inc. All rights reserved. All information in this book is subject to change without notice. Vault makes no claims as to the accuracy and reliability of the information contained within and disclaims all warranties. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of Vault.com, Inc. Vault, the Vault logo, and The Most Trusted Name in Career InformationTM are trademarks of Vault.com, Inc. For information about permission to reproduce selections from this book, contact Vault.com, Inc., 75 Varick Street, 8th Floor, New York, NY 10013, (212) 366-4212. Library of Congress CIP Data is available. ISBN 13 : 978-1-58131-696-4 ISBN 10 : 1-58131-696-8

AcknowledgmentsAlice Doos acknowledgments: The author would like to thank her family, friends, and colleagues for all their support and help. First, thanks to Vault editor, Matt Thornton for taking a random chance. Mom and Dad, thank you for a lifetime of encouragement. This book would not been possible without my friends who are infinitely smarter notably, Hugh Au, Holly Bui, Brian and James Castiglioni, Eric DeNatale, Angeline Hsu, Jagan Pisharath, Roman Smurkler, Bo Tang, Andrew Yeh (left!), and Andrew Yim. Thanks to all the firms who interviewed me and said no, because how else could I have gained the credentials to write this book? Special thanks to Leo, Susan, Jessica, Grishma, Helis, Kevin and Annie at the Carlyle Group for finally giving me a job. Vaults acknowledgments: We are extremely grateful to Vaults entire staff for all their help in the editorial, production and marketing processes. Vault also would like to acknowledge the support of our investors, clients, employees, family and friends. Thank you!

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Table of ContentsINTRODUCTION 1

Preparation is Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

BREAKING INTO THE INDUSTRY

3

The Right Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Meet the Headhunters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

WHAT TO EXPECT

7

Overview of the Interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Why You at XYZ Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Behavioral Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

WORK/DEAL EXPERIENCE

15

Switch Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

ACCOUNTING

23

Solid Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

FINANCE

31

Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

BRAINTEASERS

41

Standardized Acumen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

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Vault Guide to Private Equity and Hedge Fund Interviews Table of Contents

CONSULTING

47

Case Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

CAPITAL MARKETS (HEDGE FUNDS ONLY)

55

Hedge Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Investment Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 Keep Sharp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 More Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77

LEVERAGED BUYOUTS (PRIVATE EQUITY ONLY)

79

Private Equitys Golden Egg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 The Beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Greed is Good: Modern Private Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 The Summer of 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 How Private Equity Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 The Exit Strategy: Return on Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 Generating Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 LBO Investment Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 Advantages and Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94 Paper LBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100

INVESTMENT MEMORANDUMS

107

Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108

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2009 Vault.com, Inc.

Vault Guide to Private Equity and Hedge Fund Interviews Table of Contents

FINAL ANALYSIS APPENDIX

123

125

Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 Finance Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128 Headhunters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147

ABOUT THE AUTHOR

155

Visit the Vault Finance Career Channel at www.vault.com/finance with insider firm profiles, message boards, the Vault Finance Job Board and more.

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IntroductionPREPARATION IS KEYWhy you?Getting a coveted position in the prestigious industry of hedge funds (HF) and private equity (PE) boils down to one question: Will you make money for the firm? The entire interview is devoted to determining that answer. All answers should be prepared accordingly. If you have worked with companies/transactions, you should not only know the details of that particular company, but also the strategic rationale as to why it would be a good investment, or why not. If you have focused on industry expertise, be sure you can pick out specific companies that would be ideal investments based on the specific criteria of the investment strategy of the interviewing firm.

Seriously, why you?Most likely, you are already in the industry or working in a breeder field like investment banking, sales and trading, or consulting. Even more likely, you are at a prestigious firm that you already sacrificed blood, sweat, and tears to break into. First, pat yourself on the back for being successful. But next, realize the competition for buy-side gets much worse. If you arent already at Goldman Sachs or Morgan Stanley with an Ivy League education, then you better fine-tune your strategy. Also, unfortunately, this book is being written in early 2009 when buy-side jobs are particularly scarce. Youll need to make it past the headhunters who pre-judge you, answer technical finance and accounting questions about a field in which you may have zero experience, and even be tested on the spot by being creating an Excel model from scratch or presenting a case study. In addition to being intelligent and capable, you absolutely must fit into the culture.

Note to the audienceThis guide covers all levels in the private equity and hedge fund space. However, the more junior the position, the more regimented th

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