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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

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  • VAULT GUIDE TO

    PRIVATE EQUITYAND HEDGE FUNDINTERVIEWSALICE 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, andcolleagues for all their support and help. First, thanks to Vault editor, Matt Thorntonfor taking a random chance. Mom and Dad, thank you for a lifetime ofencouragement. This book would not been possible without my friends who areinfinitely smarter notably, Hugh Au, Holly Bui, Brian and James Castiglioni, EricDeNatale, 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? Specialthanks to Leo, Susan, Jessica, Grishma, Helis, Kevin and Annie at the Carlyle Groupfor finally giving me a job.

    Vaults acknowledgments: We are extremely grateful to Vaults entire staff for all theirhelp in the editorial, production and marketing processes. Vault also would like toacknowledge the support of our investors, clients, employees, family and friends.Thank you!

    v

  • Table of Contents

    INTRODUCTION 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

    vii

  • 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

    Vault Guide to Private Equity and Hedge Fund Interviews

    Table of Contents

    viii 2009 Vault.com, Inc.

  • FINAL ANALYSIS 123

    APPENDIX 125

    Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

    Finance Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

    Headhunters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147

    ABOUT THE AUTHOR 155

    Vault Guide to Private Equity and Hedge Fund Interviews

    Table of Contents

    ixVisit the Vault Finance Career Channel at www.vault.com/finance with

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  • Introduction

    PREPARATION IS KEY

    Why you?

    Getting a coveted position in the prestigious industry of hedge funds (HF) andprivate 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 withcompanies/transactions, you should not only know the details of that particularcompany, but also the strategic rationale as to why it would be a good investment, orwhy not. If you have focused on industry expertise, be sure you can pick out specificcompanies that would be ideal investments based on the specific criteria of theinvestment strategy of the interviewing firm.

    Seriously, why you?

    Most likely, you are already in the industry or working in a breeder field likeinvestment banking, sales and trading, or consulting. Even more likely, you are at aprestigious 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 competitionfor buy-side gets much worse. If you arent already at Goldman Sachs or MorganStanley 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 areparticularly scarce.

    Youll need to make it past the headhunters who pre-judge you, answer technicalfinance and accounting questions about a field in which you may have zeroexperience, and even be tested on the spot by being creating an Excel model fromscratch or presenting a case