General Interview Preparation Guide

What To Know Before You

WHAT TO KNOW BEFORE YOU INTERVIEW Interview
The Structure of the Interview Process
The Structure of the Interview Process
Interviewing is often a multiple round process, designed to vet candidates’ strengths
 The Typical Four Round
and weaknesses. The structure of the interview and the types of questions asked
will vary depending on the background of your interviewer and the stage of the Process
interview process. Many times the process will follow this format:  Keep In Mind…
 Know Your Interviewer
Things That AREN’T On Your Resume
 Explain, Discuss, Be
Knowledgeable About
Firm Specific Prep
Recommended Websites & Publications
Interview Do’s & Don’ts
Speaking in the Affirmative

The Behavioral Interview

Tell Me About Yourself
v 2.0  How to Structure Your Answer
 What Are You Most Proud Of
 A Generic Question w/ a
Specific Answer
 Sample Behavioral Questions

Work/Deal Experience
Walking Through A Deal
 Creating Deal “Pitch Books”
 Discussing Your Deal
Experience

Sample Corporate
Finance/Accounting Questions

Sample Valuation Questions

Brainteasers & Case Questions

What They Test
As candidates interview with multiple firms, they should keep in mind that larger  Keep In Mind…
firms generally run faster processes because they have the infrastructure to  Breaking It Down
meet a high volume of candidates in a short period of time. Conversely, smaller
Porter’s Five Forces
firms generally need to spend more time to thoroughly vet candidates.
Candidates interviewing for positions that are NOT structured, two year  Sample Brainteasers & Case
commitments are also more likely to have lengthier interview processes. Questions 1
 Know Your Interviewer
HR Professionals focus their interviews on candidates’ decision-making rationales (personally,
professionally & academically), behavioral questions, and pre-selected brainteasers and corporate finance
questions. Hedge Fund HR Professionals will also focus a portion of their interview on discussing candidates’
highest conviction investment idea.
Analysts and Associates can often be some of the toughest interviewers! Having recently gone through the
interview process themselves, they have an arsenal of recent deal-related and corporate
finance/accounting questions at their fingertips.
Senior Investment Professionals spend the most time assessing candidates’ investment perspective by
centering their conversations around case studies, investment theses/ideas and specific deal structuring
questions
Founders/Partners/Principals gravitate towards more high-level questions centered around candidates’
interest in the firm, position and long-term career goals.

The Things That AREN’T on Your Resume

Private equity firms and hedge funds target candidates who have a passion for investing and those that are looking to
apply the skills they have learned in their Analyst programs to investment evaluation. There is a strong correlation
between candidates’ familiarity with the Alternative Investments space and their ability to successfully convey their
passion for investing in private companies or public markets. In other words, speaking the interviewer’s “investing
language” is the differentiating factor in the recruiting process.
Beyond knowing which investments the fund has held, pay attention to what those investments returned for the fund
and how the investments fit into the firm’s overall investment strategy. Understand the larger market and use that to
prepare investment ideas that fit the firm’s specific investment style.

Firm-Specific Prep
Once a candidate has been selected for an interview, (s)he should immediately begin firm-specific preparation. A high
degree of importance is placed on a candidate’s ability to demonstrate his or her understanding of the firm and the
position for which (s)he is interviewing. Candidates who are able to link that understanding to their experiences and
interests are much more likely to be successful in the process.

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 Recommended Websites & Publications:*

Websites Publications

•www.pehub.com •13D
•High Tech Strategist
•www.pevc.dowjones.com •Altassets
•International Strategy & Investment (ISI)
•dealbook.nytimes.com •Barron’s Citron Research blog
•Jeremy Grantham's Quarterly Letter
•www.peinsider.com •CLSA GREED and Fear
• John Mauldin
•www.euromoneyplc.com •CreditSights
•LBO Wire
•www.hedgefundalert.com •Dan Loeb's Letters
•Michael Pettis
•www.capitaliq.com •David Rosenberg's daily letter
•Naked Capitalism
•www.bloomberg.com •EconMatters Blog
•Oaktree /Howard Marks Letters
•www.privatemarkets.thomsonreuters.com •The Economist
•Value Investors Club
•www.hedgeindex.com •Financial Times
•Warren Buffett Letters
•www.thehfa.org •Gloom Boom Doom
•www.distressed-debt-investing.com •Grant's Interest Rate Observer

*For additional reading suggestions, please download the DSPNY Suggested Reading List.

Interview DO’s Interview DON’Ts

Conduct in depth research on the firm, and know: X Fidget with a pen or business card (both should be on
 Founding date & fund size (current and the desk or in a portfolio)
lifetime) X Read off of a resume
 Industries of focus & recently closed deals X Answer a question before the interviewer has asked it
 Previous and current portfolio co’s & returns i.e. incorporating the answer to “Why PE?” into
 Investment criteria the answer to “Tell me about yourself”
Research your interviewer’s professional background X Tell firms about active interview processes with
Prepare thoughtful, firm- and role-specific questions drastically different mandates
Bring several copies of your resume, business cards, a X Glance at your BlackBerry
portfolio and a pen X Remain seated if another interviewer enters the
Wear a dark or navy blue suit and a white shirt, room; stand and greet every new interviewer and
Men: choose a conservative tie shake their hand
Women: wear tights or hose with a skirt and X Lean back, cross your legs, or place your ankle on your
keep your make-up and nails neutral knee
Arrive 5 minutes early and overestimate the amount X Say that you “don’t know much” about a position or
of time you will need to be out of the office firm
Be courteous to the receptionist X Avoid making eye contact
Always speak in the affirmative (see Light Bulb
Moment)

Speaking in the Affirmative

Q: Why are you looking to leave investment banking?
A: Investment banking continues to provide a steep learning curve; I’ve focused on
fundamental company valuations, assessed strategic alternatives and had a great
experience modeling DCF’s LBO’s, M&A’s, etc. That said, I want to learn how to invest. I
find principal investing fascinating and I feel that working at a PE firm/HF will afford me
the opportunity to learn how to evaluate investments.

Sounds much better than…

A: Investment Banking does not allow me to think like an investor. Working in an advisory
capacity on short-term, project-oriented transactions makes it difficult to thoroughly
diligence companies and follow through on an investment thesis.
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THE BEHAVIORAL INTERVIEW

Tell Me About Yourself

What You Are Most Proud Of?
Almost every meeting begins with the interviewer asking the
candidate, “tell me about yourself”. Ironically, such a simple Candidates should ask
question is arguably one of the most important! Because “tell me themselves what they are
about yourself” is the first question asked, a candidate’s response most proud of – if the
sets the tone of the interview while simultaneously giving the answer is not
incorporated into the
candidate an opportunity to develop a rapport with his
response to “Tell me
interviewer. about yourself”, then the
Every interviewee will be asked this and, as such, will have his answer to this question
answer benchmarked against other interviewees’. Candidates needs to be reworked!
should have ~90 seconds to respond before the interviewer will
lose interest. A candidate’s response dictates the interviewer’s
first impression, so it’s extremely important that this response is
very thoughtful! Candidates should keep the following in mind
when structuring their answers:
 A candidate’s story affords him the opportunity to differentiate himself by incorporating personal
stories that are not listed on his resume and highlighting things that ARE on his resume and might
otherwise go missed (see Light Bulb Moment).
… (i.e. “When I was in middle school my father and I used to read the Wall Street Journal together every
Saturday morning. This is what initially sparked my interest in finance and investing.”)
 A candidate’s resume should be discussed in chronological order, highlighting not only WHAT he
has accomplished academically and professionally, but also clarifying WHY each move was made. In
order to differentiate himself, the candidate needs to share personal tidbits about growing up, his
family, etc. prior to jumping into his resume.
… (i.e. “Growing up, my father’s job caused our family to move around quite a bit – I spent time living in
New York, Brazil and Mexico which is how I became proficient in Portuguese and Spanish.”)
 It is important to “connect the dots” and explain how one experience (personal, professional or
academic) affected the next. Common transitions (i.e. a summer investment banking internship that
turned into a full-time position) REQUIRE well thought-out explanations in order to not sound
generic and rehearsed (see Light Bulb Moment).
 Answers to an interviewer’s questions should be thoughtful but concise. A good rule of thumb is
that answers to most questions should be ~30 seconds long.
 Have conflicts and accomplishments prepared to help answer situational questions.

A Generic Question with a Specific Answer

Q: Why did you pursue a career in investment banking?
A: I thought investment banking would enable me to learn about fundamental company
valuations and strategic alternatives, both of which I found very interesting. I also thought that
working in small, project-oriented teams would expose me to a number of different projects, in a
shorter amount of time, and enable me to learn a lot.
Sounds much better than…

A: Everyone I spoke with told me that investment banking would be a great platform where I
could learn a lot in a short period of time.

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 SAMPLE BEHAVIORAL QUESTIONS

Why did you choose …

Your college? Your major? Your internship? Your current job?

Tell us about…
A difficult decision you've made in the last year.
A situation where you showed initiative and took the lead.
 The most difficult experience you’ve had at work. Why? How did you
approach the problem? What would you have done differently?
 How you perform in unstructured environments.
 An entrepreneurial accomplishment.
 What your friends say about you. How would your coworkers describe you
if they were talking about you around the water cooler?
 Whether you are stronger commercially or technically.
 A time you tried to accomplish something and failed.
 A trait that would rank you in the top decile among your classmates and
one that would rank you in the bottom.
 Your strengths and weaknesses.
 Your interests and hobbies outside of work.
 The most recent book you’ve read.
 Who you respect/admire the most. Why?
 The investing you’ve done in the past.
What are you are looking for …
 In your next job?
 In the next 5 years? 10 years?
 As your ideal work environment?
What…  If PE/HF opportunities weren’t an option?
 With regards to business school?
 Do you like most about your job? Dislike?
 Makes you a good investor?
 Do you know about our firm?

Why…
 Are you looking to leave your current position?
 Are you interested in Private Equity? Hedge Funds?
 Are you interested in our firm?

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WORK/DEAL EXPERIENCE
Walking Through a Deal
Approximately 50% of private equity interview discussions and 40% of hedge fund interview discussions center
around candidates’ work/deal experiences. Fortunately, candidates can dictate the general direction of these
conversations by selectively choosing the transactions they list on their resumes. Candidates are encouraged to
list 3 to 4 deals on their resumes and to avoid listing deals that were part of summer internship experiences or
that they were not heavily involved with. Regardless of whether a deal is live or closed, it is important to be up to
date on its most recent happenings. As such, candidates should continuously study their transactions (see Light
Bulb Moment).

Similar to interviewers asking candidates to “tell me about yourself,” candidates are often asked to “walk
through XYZ deal” on your resume. A strong answer should be ~45 seconds long and structured in a way that
incorporates the following:
 The strategic rationale behind the deal, Create Deal “Pitch Books”
including the investment thesis and potential Candidates should
pitfalls create their own deal
 A quick overview of the companies involved “pitch books” that they
 The drivers of the model can use to refresh
 The factors affecting company value and the themselves on the
ultimate transaction value details of a deal that’s
 The capital structure closed, failed, etc.
 The major points of risk from an investment
perspective

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SAMPLE CORPORATE FINANCE/ACCOUNTING QUESTIONS
Definitions & Formulas…
B/S = Balance Sheet
I/S = Income Statement
F/S = Financial Statement
DCF = Discounted Cash Flow
FCF = Free Cash Flow
EBITDA = Earnings Before Interest, Taxes, Depreciation, & Amortization
IRR = Internal Rate of Return
TEV = Total Enterprise Value
DSO = Days Sales Outstanding
NOL = Net Operating Loss
WIC = Working Capital
A/R = Accounts Receivable
A/P = Accounts Payable
CF = Carried Forward
ABL = Assets Based lending
CAPM = Capital Asset Pricing Model
CAPEX = Capital Expenditure
PIK = Payment-In-Kind
WACC = Weighted Average Cost of Capital
PIPE = Private Investment in Public Equity
Inventory Turnover = COGS / Average Inventory
A/R Turnover = Net Credit Sales / Average Accounts Receivable
Days Sales Outstanding = 365 / A/R Turnover
Days Inventory = 365 / Inventory Turnover
Current Ratio = Current Assets / Current Liabilities
COGS = Cost of Goods Sold

How do you derive free cash flow?

EBIT
Taxes
+ Depreciation and Amortization
+ Change in Working Capital
─ Capital Expenditures
= Unlevered Free Cash Flow
─ Cash Interest
─ Preferred Dividends
+/ ─ Issuance or Repayment of Debt & Preferred Shares

= Levered or Equity Free Cash Flow 7

SAMPLE CORPORATE FINANCE/ACCOUNTING QUESTIONS (CONT.)

Tell me about bonds and interest rates…

What…
 Is convexity?
 Is duration?
 Is the method for valuation of a bond?
 Is the difference between convertible and reverse convertible bonds?

 Is the relationship between a bond’s price and its yield?

 Are the accounting implications of a premium bond on all three statements?
 Isthe duration of a 5-year zero coupon bond?
 Are the annual payments received by the owner of a five year zero coupon bond?

Explain to me…
 What the accounting implications are of a bond premium on all three statements.
 Whether a discount or premium bond would be more affected by changes in
interest rates.
 Why bank debt maturity is shorter than subordinated debt maturity.
 Which corporate bond would have a higher coupon, a AAA or a BBB.
 What happens to bond prices when interest rates decrease.

Walk me through…
 What is the 1-year holding period return of a 30 year US Treasury bond if it is currently
selling at par ($100) with a 7% coupon and the Yield to Maturity a year from now is 11%?
 Say you have a normal bond that you buy at par and you get the face amount at
maturity. Is that most similar to buying a put, selling a put, buying a call, or selling a
call?
 Let’s say that I have a bond with a 5 % coupon. What happens to the market price
when the prevailing interest rates rise to 8 %? How are the coupons affected?

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SAMPLE CORPORATE FINANCE/ACCOUNTING QUESTIONS (CONT.)

What…
 Is preferred stock v. regular stock?
 Is stock purchase v. asset purchase?
 Is high-yield debt?
 Are the four basic ways to value a company?
 Is accretion/dilution analysis?
 Is the treasury method?
 Is LIBOR?
 Are the parameters of the Black Scholes Model?
 Is a coverage ratio?
 Is a leverage ratio?
 Is put-call parity?

Walk me through…
A pen costs $10 dollars to buy. It has a life of ten years.
How would you put it on the balance sheet?
At the end of the second year, you discover the
pen is a rare collector’s item. How much is it on
the balance sheet now?
In another scenario, at the end of the second
year, the pen runs out of ink and you have to
throw it away. How much is it on the balance sheet now?
 If a company has $30mm EBITDA, $20M FCF, $100M in debt and can sell for $300mm
TEV, what is the break-even multiple after 2 years assuming no EBITDA growth?
 If you put $100 in the bank and got back $2 every year for the next 19 years and then in the
20th year, received $102, what is your IRR?
 If A/R is increased by $10M, what effect does that have on cash? Explain AR in layman’s terms.
 How companies can use A/R to manipulate their earnings.
 If a company's revenue grows by 10 %, would its EBITDA grow by more than, less than or the
same %?
 How a decrease in financial leverage will affect a company’s cost of equity capital, if at all.

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SAMPLE VALUATION QUESTIONS
Valuation, the process of estimating what something is worth, is the crux of
hedge fund analyst and private equity associate positions. It is critical that
candidates are able to apply corporate finance and accounting fundamentals to
investment analysis…

How Do You…
 Begin analyzing a new company?
 View maintenance, growth, and acquisition CapEx when analyzing a company?
 Forecast stability of cash flows?
 Describe cyclicality and seasonality? Are they good or bad?

Walk Me Through…
 Why the fair market value of a company should be the higher of its liquidation
value or its going-concern value.
 Pre and post deal equity valuation.
 The impact of a PIK security issuance on all three financial statements.
 What analysis would you perform If you were presented with a management team’s
financial plan.
 The features of a good business model.
 Five reasons why a company would want to acquire another company.
 Why you would or would not make an offer to buy a company at its current stock
price.
 Why two different companies might trade at different P/E ratios.
 Why you do/do not think a multiple of EBITDA is the most appropriate financial
metric to anchor a valuation.
 Why two similar companies would trade at different EV/EBITDA multiples.
 How selling an asset for $500M in cash affects your three financial statements.

Tell me…
 If you can only have one financial statement which one would you choose? Why? What
if you could have 2? Why?
 If a company has seasonal working capital, is that a deal killer?
 What the impact would be on the financial statements of switching from capitalizing
some R&D to expensing it immediately or vice versa?
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SAMPLE VALUATION QUESTIONS (CONT.)
For Example…
 If a company has $30M EBITDA, $20M free cash flow, $100M in debt and can sell
for 10x (i.e. $300M TEV), what is the breakeven multiple after 2 years assuming no
EBITDA growth?
 I am looking at a deal in the (telecom, healthcare, financial services, industrial,
Internet, etc.) industry that is in the business of ------. How would you go about
evaluating this deal? Do you think it is a good investment? Why or why not? What
else would you need to know?
 You have a company with $500M of senior debt and $500M of junior
debt. The senior debt has an interest rate of L+ 500 and, in default, would recover
70 %; the junior debt would recover 30 %in default. What should the interest rate be
on the junior debt?
What if this was an LBO scenario and you had a sponsor putting in $500M
million of equity?
 A company has $10M of cash, $1M of shares and nothing else. What’s its stock
price?
 What if the company wins $10M in the lotto?
 What if the company uses the lotto money to repurchase shares at
$25/share?
 What’s the share price today if the repurchase is in one month?
 You accidentally misstated depreciation in your model. It should be $10M
higher. How does this affect the three financial statements?
 If you merge two companies, what does the pro-forma income statement look like?
Discuss whether you can just add each line item for the pro-forma company.
 You have a company with $100M in Sales, what will make the biggest impact?,
volume increases by 20%, price increases by 20% OR expenses decrease by $15M?

HOW MUCH WOULD YOU BE WILLING TO PAY FOR COMPANY “A” AT ENTRY?
Company A

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BRAINTEASERS AND CASE QUESTIONS
What They Test
Brainteasers and case questions are incorporated into the interview process to test candidates’ mental acuity, critical
thinking, and problem solving abilities. Case studies often involve qualitative and quantitative questions as they apply to
real-world business situations, while brainteasers tend to center around algebra, geometry and conditional
probability/statistics.

In addition to getting the “right” answer, candidates are evaluated on their approach to thinking through and structuring
their responses. Because of this, candidates are encouraged to think out loud; candidates should walk the interviewer
through their general thought processes and the rationales behind any assumptions made (see Light Bulb Moment).

Candidates should keep in mind the following when

approaching case study questions /brainteasers:
 Listen carefully to the question/prompt Breaking It Down
 Take a moment to organize your
thoughts
 Restate the problem and ask questions What is the annual U.S. market for chewing gum
that will enable you to quickly (in total number of consumers)?
summarize the potential upside and risks
Estimate the total U.S. population (~300 million)
 Mentally define a roadmap which
Segment the population based on some metric
enables you to develop your hypotheses
 Effectively communicate those (age is usually a good metric)
hypotheses and the framework you plan Estimate the number of people in each
to use for evaluation population segment
 State the assumptions you are making Make a guess at the percentage of each
 Perform necessary calculations segment that chews gum
 Summarize your conclusions
Complete the math and arrive at a final answer
 Outline your recommendations
 Make any additional considerations (i.e.
expected impact, anticipated risks,
implementation steps)
Porter’s Five Forces
Private equity firms and hedge funds are constantly looking to invest in businesses that outperform their competitors.
As such, when candidates are asked to critically think through business situations, it is helpful to be familiar with Porter’s
Five Forces. Porter’s Five Forces provides a framework for industry analysis and business strategy; the model draws
upon industrial organization economics to derive five forces that determine the competitive intensity and attractiveness
of a market. Having familiarity with this model is helpful in assessing attractive investment opportunities. When
presented with a case study, consider the following:
 Number of suppliers Other differences
 Size of suppliers  Switching costs
 Uniqueness of service  Customer loyalty
 Ability to substitute  Costs of leaving
 Cost of changing  Substitute performance
 Number of customers  Time and cost of entry
 Size of each order  Specialist knowledge
 Differences between competitors  Economies of scale
 Price sensitivity  Cost advantages
 Number of competitors  Technology protection
 Quality differences

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SAMPLE BRAINTEASER & CASE QUESTIONS

Numbers
 What is 1/8? What is 1/16? What is 1/8 of 1/16? What would 1/8 of
1/17 be?
 What would 1/17 be? Greater or less than 6%?
 What is 22 times 22?
 What is the sum of the numbers between 0-100?
 What is the square root of 7,000,000 (approximately)?
 What is larger, 3^4 or 4^3?
 What is 99 squared?
 A cube is made of 1,000 smaller cubes. How many smaller cubes can
you see?
 You’ve got a 10 x 10 x 10 cube made up of 1 x 1 x 1 smaller cubes. The
outside of the larger cube is completely painted. On how many of the
smaller cubes is there any paint?
 Say you are driving two miles on a one-mile track. You do one lap at 30 miles per
hour. How fast do you need to go to average 60 miles an hour?
 A car travels a distance of 60 miles at an average speed of 30 mph. How fast would the
car have to travel the same 60 mile distance to average 60 mph over the entire trip?
 What is the angle between the hour-hand and minute-hand of a clock at 3:15?

One hundred people line up to board an airplane.

Probability Each has a boarding pass with assigned seat.
However, the first person to board has lost his
boarding pass and takes a random
A windowless room has 3 light bulbs . You are seat. After that, each person takes the assigned
outside the room with three switches, each seat if it is unoccupied, and one of unoccupied
controlling one of the light bulbs. If you can seats at random otherwise. What is the
only enter the room one time, how can you probability that the last person to board gets to
determine which switch controls which light sit in his assigned seat?
bulb?

There are five coins. Four are normal. One has

There is a lily pad in a pond that heads on both sides. If I draw a coin at random
doubles in size every minute. After from this pile, and flip heads four straight times,
one hour, the lily pad fills the entire what is the probability I drew the two-headed coin?
pond. When is it one-eighth full?
What is the probability of drawing two sevens in a card deck?
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SAMPLE BRAINTEASERS & CASE QUESTIONS (CONT.)

Logic
 You are given a 3-gallon jug and a 5-gallon jug. How do you use them to get 4
gallons of liquid?
 How many quarters would it take to make a stack from the floor of this room to the
ceiling?
 You are given 12 balls and a scale. Of the 12 balls, 11 are identical and 1 weighs
slightly more. How do you find the heavier ball using the scale only three times?
How many donuts are sold in Manhattan on an average morning?

You have a cylinder…

that is 24cm in circumference and 90cm
high. If you wanted to wrap a string around
the cylinder five times starting at the base of A King…
the cylinder and moving up to the top of the has 1,000 subjects who each
cylinder (so that you're not just wrapping hand him 1,000 bars of gold,
the string around the cylinder five times at each weighing a pound. One
the base, but rather escalating up the entire of these subjects hands him
height of the cylinder), how long is your 1,000 bars of gold, each
piece of string? weighing only 0.9 pounds.
The King has a digital scale,
but can only use it once. How
does he find the subject that
shorted him?

Four investment bankers …

need to cross a bridge at night to get to a meeting. They have only one flashlight
and 17 minutes left to get to the meeting. The bridge must be crossed with the
flashlight and can only support two bankers at a time. The analyst can cross in one
minute, the associate can cross in two minutes, the VP can cross in five minutes
and the MD takes 10 minutes to cross. How can they all make it to the meeting in
time?

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