Private Equity interview preparation

Questions

100

Traced to a firm

83

Firms

40

Updated

September 2026

Asked at

All firmsAdvent International6Apollo Global Management6Audax Group6Carlyle Group6EQT6Silver Lake6Vista Equity Partners6WPWarburg Pincus6HIH.I.G. Capital5Oaktree Capital Management5Platinum Equity5TPTPG5General Atlantic4AMAres Management3Blackstone3Clayton Dubilier and Rice3GSGuggenheim Securities3Insight Partners3Invesco3Lazard3Neuberger Berman3NUNuveen3TSTruist Securities3Bain Capital2HWHarris Williams2Kohlberg Kravis Roberts2Millennium Management2Moody's2Rothschild & Co2WBWilliam Blair2Bessemer Venture Partners1Citi1Evercore1FTFranklin Templeton1Houlihan Lokey1HPS Investment Partners1KKR1Mizuho1MSMorgan Stanley1Sycamore Partners1

Topic

All topicsLBO mechanics7Value creation5Returns2Fund economics9Investment judgement18Valuation6Firm knowledge2Credit and financing9Operations4Due diligence8Career and fit11Sector knowledge4Accounting2Deal structuring7Industry knowledge3Brainteasers3

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseFitMarket viewBrainteaser

1. 017Walk me through the promote structure on a deal you worked on.Fund economicsHardtechnicalHIH.I.G. CapitalLeveraged Buyouts · New York · 2021

   Say this

   A promote is the sponsor's disproportionate share of profits above a return hurdle. Describe the waterfall: return of capital, then the preferred return, then a catch-up, then a split that steps up at higher return tiers.

   Then walk it

   1. Tier one: return of capital. All investors get their contributed capital back before any profit is shared.
   2. Tier two: the preferred return, typically 8 percent, paid to all capital pro rata.
   3. Tier three: the catch-up, where the sponsor receives most or all of the distributions until it has reached its target share of profits.
   4. Tier four onwards: the split, commonly 80/20, often stepping up to 70/30 or 60/40 above higher IRR hurdles such as 15 or 20 percent. That step-up is what makes the promote asymmetric and is the whole incentive design.
   5. Then the mechanics that matter in practice: whether the hurdle is measured on IRR or on a money multiple, whether it is calculated deal-by-deal or across the whole fund, and whether there is a clawback.
   6. If you have actually worked on a deal, walk through the real numbers and say what the sponsor earned at each tier. If you have not, say so and walk through a standard structure rather than inventing specifics you cannot defend.

   Where candidates lose it

   Not being able to name the tiers in order. If you claim deal experience, expect to be asked for the actual hurdle and split. Never invent specifics about a real deal; being caught fabricating ends the process.

   Expect next

   • IRR hurdle or multiple hurdle, and why does it matter?
   • What is a clawback?
   • How does the management incentive plan interact with this?

   Reported by candidates at H.I.G. Capital (Leveraged Buyouts, New York, 2021). Source: Wall Street Oasis.

2. 018How does the management incentive plan work, and how does it affect your returns?Fund economicsHardtechnicalCitiMergers and Acquisitions · New York · 2026

   Say this

   A pool of equity, typically 8 to 15 percent, granted to management and vesting on time and on returns. It dilutes the sponsor's exit proceeds, so it reduces your IRR but does not change the entry price.

   Then walk it

   1. Structure: a mix of time-vesting equity and performance-vesting equity tied to the sponsor achieving a money multiple or IRR hurdle. The performance tranche is what does the aligning.
   2. Sizing: commonly 8 to 15 percent of fully diluted equity, larger in smaller deals and where management is expected to drive the whole value creation plan.
   3. In the model it sits at exit, reducing the sponsor's share of equity proceeds. So it lowers your IRR rather than raising the purchase price, and modelling it as an entry cost is the common error.
   4. It is distinct from rollover, which is management reinvesting existing proceeds and therefore a source of funds in sources and uses. Rollover aligns on the downside; the incentive plan aligns on the upside.
   5. Design questions that matter: what happens on a good leaver or bad leaver departure, whether there is acceleration on a change of control, and whether the hurdle is set high enough to be motivating but low enough to be believable.
   6. The failure mode to avoid: a plan that goes underwater early in the hold. Once management believes the hurdle is unreachable, the alignment inverts and you have to reprice it, which is expensive and awkward.

   Where candidates lose it

   Confusing it with rollover, or placing it in sources and uses. The incentive pool dilutes exit proceeds; rollover funds the purchase. That distinction is the technical core of the question.

   Expect next

   • How much rollover would you expect from management?
   • What happens if the plan goes underwater?
   • How would you set the hurdle?

   Reported by candidates at Citi (Mergers and Acquisitions, New York, 2026). Source: Wall Street Oasis.

3. 021What is a quality of earnings analysis and what are you looking for?Due diligenceHardtechnicalHWHarris WilliamsInvestment Banking · Richmond · 2025

   Say this

   It bridges reported EBITDA to a sustainable, normalised EBITDA that a buyer can actually underwrite. You are looking for anything in the reported number that will not be there next year.

   Then walk it

   1. Add-backs the seller proposes: one-time legal costs, owner's excess compensation, discontinued product lines, pro forma savings from actions already taken. Some are legitimate; many are not.
   2. The ones to challenge hardest: pro forma synergies from actions not yet taken, run-rate adjustments annualising a single good month, and recurring restructuring dressed as one-off.
   3. Revenue quality: customer concentration, contract terms and renewal rates, cut-off testing around the period end, and whether any revenue was pulled forward to flatter the sale process.
   4. Cost completeness: costs the business has not been bearing, such as an owner working unpaid, rent below market on a related-party property, or under-investment in maintenance and IT that a buyer will have to fund.
   5. Working capital: establish a normalised level, because the purchase agreement will have a working capital peg. Sellers manage working capital down before a sale, and if you set the peg from the manipulated level you overpay at completion.
   6. The output is an adjusted EBITDA and a defensible working capital target, and those two numbers are what the price is actually built on.

   Where candidates lose it

   Treating it as an audit. It is not; it is a normalisation exercise. And missing the working capital peg, which is where real money changes hands at completion and which most candidates never mention.

   Expect next

   • What is a working capital peg?
   • Which add-backs would you refuse?
   • How would you verify the pipeline to forecast revenue?

   Reported by candidates at Harris Williams (Investment Banking, Richmond, 2025). Source: Wall Street Oasis.

4. 027How would you underwrite a carve-out from a large corporate?Investment judgementHardsuperdayPlatinum EquityPrivate Equity · Los Angeles · 2014

   Say this

   The core problem is that the carve-out financials are not the real financials. You have to build a standalone cost base, including everything the parent was providing for free, and then underwrite the separation itself.

   Then walk it

   1. Start with the standalone cost base. The division has been receiving IT, HR, finance, legal, procurement and possibly premises from the parent. Allocated corporate costs in the carve-out accounts are almost never what standalone will actually cost.
   2. Usually standalone costs more, because you lose the parent's scale in procurement and have to build functions from nothing. Sometimes it costs less, because the allocation was punitive. You have to build it bottom-up either way.
   3. Then the transitional services agreement: what the parent will provide, for how long and at what price. The TSA is the bridge, and running out of TSA before you have built the replacement capability is the classic carve-out failure.
   4. Separation costs are real cash: systems migration, rebranding, new contracts, recruitment. These are often 5 to 10 percent of enterprise value and must be funded on day one.
   5. Commercial questions: which contracts transfer and which need customer consent, whether the division sells to the parent, and whether that relationship continues on the same terms.
   6. The upside case is what makes carve-outs attractive: these businesses are typically under-managed and under-invested because they were non-core. Freed of the parent's bureaucracy and given a dedicated management team, margin improvement is often substantial. That is the thesis, and the separation risk is the price of admission.

   Where candidates lose it

   Modelling the division's reported EBITDA as if it were standalone. Stranded costs and the TSA are the whole substance of a carve-out, and separation costs are real cash that must appear in sources and uses.

   Expect next

   • What is a TSA and what happens when it expires?
   • How do you size stranded costs?
   • Why are carve-outs attractive to sponsors?

   Reported by candidates at Platinum Equity (Private Equity, Los Angeles, 2014). Source: Wall Street Oasis.

5. 029What is the difference between incurrence and maintenance covenants?Credit and financingHardtechnicalLazardGeneralist · Amsterdam · 2025

   Say this

   A maintenance covenant is tested every quarter regardless of what the borrower does. An incurrence covenant only bites when the borrower takes a specific action, such as raising more debt or paying a dividend.

   Then walk it

   1. Maintenance: the borrower must keep leverage below a level, or coverage above one, tested quarterly. Miss it and you are in default even if nothing else has changed. This is traditional bank loan territory.
   2. Incurrence: the test applies only when you do something, like incur additional debt, make a restricted payment or complete an acquisition. If you sit still and deteriorate, nothing happens. This is bond and covenant-lite territory.
   3. Why sponsors want incurrence: it removes the risk of a technical default during a temporary downturn, which preserves control of the situation.
   4. Why lenders want maintenance: it gives them an early seat at the table when performance deteriorates, while there is still enterprise value to negotiate over.
   5. The market has moved decisively toward covenant-lite structures in broadly syndicated loans, often with only a springing leverage covenant on the revolver tested when it is substantially drawn.
   6. The consequence worth naming: with fewer maintenance tests, lenders find out later and recoveries in default have been lower. That is one of the live concerns about the current credit cycle.

   Where candidates lose it

   Getting them the wrong way round, or not knowing the term covenant-lite. Since covenant-lite is now the market standard in large-cap leveraged finance, not knowing it signals you have not looked at real deal documents.

   Expect next

   • What is a springing covenant?
   • What does covenant-lite mean for recoveries?
   • How much headroom would you negotiate?

   Reported by candidates at Lazard (Generalist, Amsterdam, 2025). Source: Wall Street Oasis.

6. 030How would you think about a dividend recapitalisation?Fund economicsHardtechnicalRothschild & CoInvestment Banking · London · 2026

   Say this

   Refinance the company to pull cash out to the sponsor without selling. It resets the IRR clock by returning capital early, but it re-levers the business and makes it more fragile.

   Then walk it

   1. Preconditions: the company must have deleveraged enough that re-levering to roughly the original multiple is fundable, and the cash flow must be stable enough that lenders will support it.
   2. The motivation is nearly always sponsor-side: fund life is advancing, the exit window is unattractive, and returning capital early de-risks the deal and flatters the IRR because early cash flows are weighted heavily.
   3. It changes the return profile: money multiple is barely affected, IRR improves materially. That divergence is exactly why limited partners scrutinise recaps.
   4. The downside: leverage is back up, the equity cushion is thinner, and covenant headroom shrinks. If the cycle turns, the business is in trouble and the sponsor has already taken its money off the table.
   5. Lenders price this. A recap financing usually carries a wider spread and tighter terms than the original, reflecting the reduced equity commitment.
   6. The honest assessment: it is a legitimate tool for a genuinely stable asset with excess debt capacity, and it is also how sponsors have historically extracted returns from deals that were not performing well enough to sell.

   Where candidates lose it

   Describing it as free money for the sponsor without the fragility point. Also missing that it inflates IRR while leaving multiple on invested capital unchanged, which is the distinction limited partners actually focus on.

   Expect next

   • How does it affect IRR versus money multiple?
   • Why would lenders agree?
   • What would a limited partner think about it?

   Reported by candidates at Rothschild & Co (Investment Banking, London, 2026). Source: Wall Street Oasis.

7. 032How would you assess a fund's performance, and what metrics would you use?Fund economicsHardtechnicalNeuberger BermanPrivate Equity · London · 2022

   Say this

   IRR, multiple on invested capital, and distributions to paid-in capital, benchmarked against a public market equivalent. The key is distinguishing realised from unrealised, because unrealised value is the manager's own estimate.

   Then walk it

   1. IRR is time-weighted and can be flattered by early distributions or by subscription line facilities that delay calling capital. Treat it sceptically on its own.
   2. MOIC, multiple on invested capital, measures total value over capital invested and ignores timing. Reporting both together makes gaming obvious.
   3. DPI, distributions to paid-in, is the honest one: actual cash returned relative to cash called. A fund with high IRR and low DPI has not actually given anybody money yet.
   4. RVPI, residual value to paid-in, is the unrealised portion, marked by the manager. In a slow exit environment this can be most of the reported value, and it is an estimate, not a fact.
   5. Public market equivalent: compare against what the same cash flows would have earned in a public index. This is the test of whether illiquidity was rewarded, and it is the benchmark sophisticated allocators use.
   6. Then the qualitative work: return attribution across leverage, multiple and operations; loss ratio and how many deals were written off; consistency across vintages; and whether the team that produced the record is still there.

   Where candidates lose it

   Quoting IRR alone. The examinable content is the DPI versus RVPI split and the public market equivalent comparison. Also naming subscription lines as a way IRR gets flattered is a strong signal of real knowledge.

   Expect next

   • How do subscription lines flatter IRR?
   • What is a public market equivalent?
   • How would you compare two funds of different vintages?

   Reported by candidates at Neuberger Berman (Private Equity, London, 2022). Source: Wall Street Oasis.

8. 033How would you pitch the fund to an endowment versus a fund of funds?Fund economicsHardsuperdayKohlberg Kravis RobertsInvestor Relations · New York · 2025

   Say this

   Both want returns, but they are solving different problems. An endowment is building a long-horizon portfolio and cares about strategy fit and access. A fund of funds is selecting managers for its own clients and cares about differentiation it can explain.

   Then walk it

   1. Endowment: long horizon, permanent capital, sophisticated in-house team. They care about how you fit their existing exposures, whether you give them co-investment rights, and whether the relationship compounds over multiple funds. They will diligence the team deeply and negotiate on access, not just fees.
   2. Fund of funds: intermediary with its own investors to satisfy. They need a clear, communicable differentiation because they have to re-sell you internally and to their clients. Track record consistency and attribution matter more, because they are defending a selection decision.
   3. Also different: an endowment may take a larger ticket and want an advisory board seat; a fund of funds may take a smaller one but bring repeat allocations across vintages.
   4. Common ground: both want return attribution that shows skill rather than leverage and multiple expansion, a stable team with aligned economics, and evidence of loss discipline.
   5. The practical difference in the pitch: for the endowment I would lead with the strategy's role in their portfolio and the partnership over time. For the fund of funds I would lead with what makes this strategy distinctive against the peer set they are comparing us to.
   6. And both will ask the same hard question: why will the next fund perform like the last one, given you are now bigger?

   Where candidates lose it

   Giving one generic pitch. The question is explicitly about tailoring, and the underlying test is whether you understand that different limited partners have different decision processes and different internal accountability.

   Expect next

   • What would each one push back on?
   • How do you answer the fund-size question?
   • What is a co-investment right worth to them?

   Reported by candidates at Kohlberg Kravis Roberts (Investor Relations, New York, 2025). Source: Wall Street Oasis.

9. 036Why would a distressed company have a high equity value?ValuationHardtechnicalSilver LakeTechnology, Media and Telecom · San Francisco · 2022

   Say this

   Because equity in a levered company is a call option on the enterprise. Even when the option is deep out of the money, it has time value, so the market prices the chance that the business recovers before the debt comes due.

   Then walk it

   1. Equity holders have limited liability and a residual claim, which is exactly the payoff of a call option struck at the face value of the debt.
   2. So when enterprise value is below debt, the intrinsic value is zero but the option still has time value. Volatility and time to maturity both increase it.
   3. That has a counterintuitive consequence: higher volatility increases equity value in a distressed company, which is why shareholders of a failing business rationally prefer risky strategies. The lenders bear the downside.
   4. There are also more mundane explanations: the market may disagree with the accounting distress, there may be a valuable non-operating asset, or a rescue refinancing may be expected.
   5. And sometimes it is just a small float with retail buyers and constrained short interest, which is a market microstructure story rather than a valuation one.
   6. The practical read for an investor: a distressed equity with meaningful market value is a levered bet on recovery, and it should be sized like an option, not like equity.

   Where candidates lose it

   Answering that the market is simply wrong. The option framing is what the question is testing, and the follow-on insight, that volatility helps distressed equity and hurts the lenders, is the part that shows genuine understanding.

   Expect next

   • So what does that imply about management's incentives in distress?
   • How does that affect the lenders?
   • How would you value the fulcrum security instead?

   Reported by candidates at Silver Lake (Technology, Media and Telecom, San Francisco, 2022). Source: Wall Street Oasis.

10. 038An oil company loses $40 million of market cap because of litigation and sells an asset to pay for it. Is the stock price drop justified?ValuationHardsuperdaySilver LakeTechnology, Media and Telecom · San Francisco · 2022

    Say this

    It depends on two things: whether the expected liability is genuinely $40 million on a present-value basis, and whether the asset was sold at fair value. If both hold, the drop is justified. If the asset went at a discount, the drop should be larger.

    Then walk it

    1. First, size the liability properly. A $40 million settlement paid today is worth $40 million, but a $40 million liability payable over ten years is worth considerably less. The market should discount it.
    2. Then, is the litigation over? If the settlement establishes precedent for further claims, the true liability exceeds the headline number and the drop should be bigger.
    3. Second, the asset sale. If the asset was sold at fair value, the transaction is value-neutral: cash in, asset out, liability settled. The whole $40 million is the litigation cost.
    4. But a forced seller rarely gets fair value. If the asset was worth $50 million and went for $40 million, the company destroyed another $10 million and the drop should be $50 million.
    5. Then the operating consequence: does losing that asset reduce future cash flows? If it was producing, you have lost the associated EBITDA and the drop should reflect the capitalised value of that, not just the cash.
    6. So my answer would be: $40 million is the floor. The justified drop is $40 million plus any discount on the forced sale, plus the capitalised value of the lost earnings, less any tax benefit on the settlement.

    Where candidates lose it

    Treating it as a simple one-for-one. The examinable content is the forced-sale discount and the lost earnings from the disposed asset. Both make the justified drop larger than the headline number.

    Expect next

    • What if the asset was non-producing?
    • How would you value the litigation tail risk?
    • Is the settlement tax deductible, and does that change your answer?

    Reported by candidates at Silver Lake (Technology, Media and Telecom, San Francisco, 2022). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.