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. 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.

2. 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.

3. 042How does operating leverage affect debt holders versus equity holders?Credit and financingHardtechnicalOaktree Capital ManagementCredit · Los Angeles · 2024

   Say this

   High operating leverage amplifies the volatility of EBITDA, which is good for equity and bad for debt. Equity holds the upside option; debt holds a fixed claim and only experiences the extra volatility as risk.

   Then walk it

   1. Operating leverage is the share of fixed costs in the cost base. High fixed costs mean a small revenue change produces a large EBITDA change in both directions.
   2. For equity, that asymmetry is valuable. Upside flows entirely to shareholders, downside is capped at losing the equity. More volatility means a more valuable option.
   3. For debt, the payoff is capped at par plus coupon. Extra volatility adds no upside and materially increases the probability of default, so the lender is strictly worse off.
   4. This is the classic agency conflict between debt and equity: shareholders of a levered company prefer more risk than lenders would choose, and the conflict sharpens as the company approaches distress.
   5. Which is why credit documents restrict exactly these choices: covenants on leverage, restrictions on asset sales and dividends, and limits on acquisitions are all attempts to stop the equity taking risk with the lender's money.
   6. Practically for underwriting: a high-fixed-cost business supports less leverage than a variable-cost business with the same EBITDA, because the downside case is so much worse. That is why lenders price manufacturing and airlines differently from services.

   Where candidates lose it

   Describing operating leverage correctly but not linking it to the option payoffs. The debt-equity agency conflict is the intellectual content, and the practical conclusion, that fixed-cost businesses support less debt, is what shows you can underwrite.

   Expect next

   • So how much leverage would you lend to an airline?
   • What covenants would you want?
   • How does that conflict behave near distress?

   Reported by candidates at Oaktree Capital Management (Credit, Los Angeles, 2024). Source: Wall Street Oasis.

4. 045How do you separate maintenance capital expenditure from growth capital expenditure?Due diligenceHardtechnicalPrivate credit

   Say this

   There is no disclosed split, so you triangulate. Compare CapEx to depreciation over a cycle, ask management for a project-level breakdown, and test whether revenue would decline if spending stopped.

   Then walk it

   1. The rule of thumb: maintenance CapEx approximates depreciation over a long enough period, because depreciation measures the consumption of the existing asset base. Anything above that, sustained, is growth.
   2. That rule breaks in inflation, since depreciation is on historic cost while replacement is at today's prices. So it understates maintenance in a high-inflation environment.
   3. Better: get the project-level CapEx budget and classify each line. Management knows the split even though they do not disclose it, and in diligence you can ask.
   4. The conceptual test: what is the minimum spend that keeps revenue and capacity flat? Anything beyond that is discretionary.
   5. For a retailer or restaurant chain there is a clean version: new store CapEx is growth, refurbishment of existing sites is maintenance, and both are disclosed at unit level.
   6. Why it matters for a sponsor: the split determines how much cash is genuinely available to service debt in a downside case, because growth CapEx can be switched off and maintenance cannot. That flexibility is worth a turn of leverage.

   Where candidates lose it

   Accepting management's split without testing it. Management has an incentive to classify spend as growth, because that makes the business look more cash-generative. The depreciation cross-check and the project-level review are the defences.

   Expect next

   • What does the split do to your leverage capacity?
   • Why does the depreciation rule break in inflation?
   • How would you test it for a manufacturer?
5. 049What is a working capital peg and why does it matter?Deal structuringHardtechnicalTransaction services

   Say this

   It is the normalised level of working capital the business is expected to be delivered with. At completion, actual working capital is compared to the peg and the price adjusts dollar for dollar for the difference.

   Then walk it

   1. The purpose: a buyer pays an enterprise value on the assumption that the business comes with enough working capital to operate normally. Without a peg, a seller could collect receivables and stop paying suppliers before closing, extract the cash, and hand over a business that immediately needs funding.
   2. Setting it: usually the average monthly working capital over the last twelve months, adjusted for seasonality and for any abnormal items. The twelve-month average is the standard, precisely because it is harder to manipulate.
   3. The adjustment: if actual working capital at completion exceeds the peg, the buyer pays more; if it falls short, the price reduces. It is a true-up, not a negotiation.
   4. Where the money is: the definition of what counts as working capital versus debt-like items. Deferred revenue, accrued bonuses, capex creditors and customer deposits are all argued over, and each can be worth millions.
   5. The seller's incentive is to set the peg low and deliver high. So in diligence you build your own normalised figure from monthly data rather than accepting the seller's average.
   6. And it interacts with the locked box alternative: in a locked box deal there is no completion adjustment at all, the price is fixed at a historic balance sheet date and the buyer takes the risk from then, which is common in Europe.

   Where candidates lose it

   Not knowing this exists. It is unglamorous and it is where real money moves at completion. Naming the debt-like items argument, and the locked box alternative, marks out someone who has been on a live deal.

   Expect next

   • What is a locked box and when would you prefer it?
   • Which items are argued over as debt-like?
   • How would you set the peg for a seasonal business?
6. 050What is a locked box, and when would you prefer it to completion accounts?Deal structuringHardtechnicalEuropean private equityM&A

   Say this

   The price is fixed by reference to a historic balance sheet date, and the buyer takes the economic risk and reward of the business from that date. No completion accounts, no true-up, just a prohibition on value leaving the box.

   Then walk it

   1. Mechanics: pick a locked box date with audited or reviewed accounts, fix equity value from that balance sheet, and the seller warrants that no value has leaked out since, other than agreed permitted leakage.
   2. The buyer usually pays interest on the price from the locked box date to completion, compensating the seller for the cash the business generated in between.
   3. Advantages: price certainty on both sides, no lengthy post-completion accounting dispute, and a faster, cleaner process. It also works well in an auction, because bids are directly comparable.
   4. It requires reliable accounts at the locked box date and a short gap to completion. The longer the gap, the more risk the buyer takes on performance it cannot control.
   5. Leakage is the key negotiation: dividends, management fees, related-party payments, bonuses. Permitted leakage is defined narrowly and anything else is recoverable pound for pound.
   6. When to prefer each: locked box in a competitive European auction with good financials and a short signing-to-closing gap; completion accounts where the gap is long, where regulatory approval is needed, or where the financial reporting is not reliable enough to trust a historic balance sheet.

   Where candidates lose it

   Not knowing the term, which is common for candidates who have only seen US deals. Also missing that the buyer takes the risk from the locked box date, which is the whole economic substance of the structure.

   Expect next

   • What counts as leakage?
   • Who bears the risk between the locked box date and completion?
   • Why is it more common in Europe than the US?
7. 057What is warranty and indemnity insurance and why has it become standard?Deal structuringHardtechnicalM&A

   Say this

   An insurance policy that covers breaches of the seller's warranties, so the buyer claims against the insurer rather than the seller. It gives the seller a clean exit and gives the buyer a solvent counterparty.

   Then walk it

   1. The problem it solves: a private equity seller wants to distribute proceeds to its limited partners and close the fund, not hold an escrow for two years against possible warranty claims.
   2. How it works: the buyer takes out a policy, typically covering up to 20 to 30 percent of enterprise value, with a retention or excess of around half a percent to one percent of deal value. Premium is usually one to two percent of the cover.
   3. Benefits to the buyer: recourse against an insurer with a credit rating rather than against a dissolved fund or a founder who has spent the money.
   4. Benefits to the seller: a nominal one-pound indemnity, no escrow, and clean proceeds. That is worth real money to a fund and is often reflected in the price.
   5. The limits matter: known issues identified in diligence are excluded, as are typically pension underfunding, transfer pricing, environmental matters and forward-looking statements. So it does not remove the need for diligence, and the underwriters will read your diligence reports.
   6. It became standard in the mid-2010s and is now the default in European sponsor-to-sponsor deals. Knowing that it is the norm rather than an exotic option is the mark of someone who has seen live processes.

   Where candidates lose it

   Not knowing it exists, or thinking it removes the need for diligence. It does the opposite: underwriters require thorough diligence and exclude anything you already found. It transfers residual risk, not known risk.

   Expect next

   • What does it typically exclude?
   • Who pays the premium in practice?
   • How does it change the negotiation of the sale agreement?
8. 066What is a continuation vehicle and what is the conflict of interest?Fund economicsHardtechnicalSecondaries

   Say this

   The manager sells an asset from one of its funds into a new vehicle it also manages, funded by new investors. Existing limited partners choose to cash out or roll. The conflict is that the manager is on both sides of the price.

   Then walk it

   1. Why it exists: a fund reaches the end of its life holding an asset the manager believes has more to give, or the exit market is closed and selling now would be value-destructive.
   2. Mechanics: a new single-asset or multi-asset vehicle buys the company. Existing limited partners elect to take cash at the transaction price or roll their interest into the new vehicle. New investors, usually secondaries funds, provide the fresh capital.
   3. The conflict is structural and obvious: the manager is both seller and buyer, and it sets the price. It also potentially crystallises carry on its own valuation.
   4. The market's answer is price validation by a genuine third party. A new lead investor negotiating at arm's length sets the price, the limited partner advisory committee approves the conflict, and an independent fairness opinion is usually obtained.
   5. The other concern is the choice forced on existing limited partners. Deciding to roll or sell requires diligence they may not be resourced to do, on a short timetable, which is not a neutral choice.
   6. They have grown from a niche workaround to a substantial share of exit volume, and regulators have taken an increasing interest in exactly the conflict described. A candidate who can name both the utility and the governance answer is giving the complete picture.

   Where candidates lose it

   Describing it as just another exit route. The conflict is the substance of the question, and naming the mitigations, third-party price validation and LPAC approval, is what turns a criticism into an informed answer.

   Expect next

   • How is the price validated?
   • Would you roll or take cash as a limited partner?
   • Why have these grown so much?
9. 072How does purchase accounting work in a buyout, and why does the goodwill matter?LBO mechanicsHardtechnicalLazardInvestment Banking · New York · 2026

   Say this

   The target's assets are written up to fair value, identifiable intangibles are recognised, and whatever is left of the purchase price becomes goodwill. The write-up creates extra depreciation and amortisation, which reduces reported earnings.

   Then walk it

   1. Start with the equity purchase price, add assumed debt, and allocate that total across the target's assets at fair value.
   2. Tangible assets get written up to market value. Identifiable intangibles are recognised separately: customer relationships, technology, trade names, order backlog, each with its own amortisation life.
   3. Whatever cannot be allocated becomes goodwill, which is not amortised but is tested annually for impairment.
   4. The earnings effect: the write-up of tangibles and the new intangibles both generate incremental D&A, which depresses reported net income for years after the deal even though the cash economics are unchanged.
   5. The tax question is what matters commercially. In a stock deal the step-up is usually not deductible, so the extra D&A is a book charge only. In an asset deal or with a 338(h)(10) election, the step-up is tax-deductible and creates a real cash tax shield, which is worth paying for.
   6. Also write off the target's existing goodwill and reset deferred taxes. And note that a deferred tax liability is usually created against the non-deductible write-up, which is a common modelling error to miss.

   Where candidates lose it

   Saying the step-up always creates a tax benefit. It only does in an asset deal or with a 338(h)(10) election. Distinguishing the book effect from the cash tax effect is the entire technical content of the question.

   Expect next

   • When is the step-up actually deductible?
   • What is the deferred tax liability doing there?
   • How does this change your accretion-dilution analysis?

   Reported by candidates at Lazard (Investment Banking, New York, 2026). Source: Wall Street Oasis.

10. 083How do you decide when to exit a portfolio company?Investment judgementHardtechnical

    Say this

    When the remaining value creation plan no longer justifies the risk of holding, or when the market is paying more than your own forward view. Fund life pressure is a real constraint but it is a bad reason on its own.

    Then walk it

    1. The principled test: compare the IRR from here to exit against the IRR of returning the capital and redeploying it. If the remaining plan generates a lower forward return than a new deal, sell.
    2. Plan completion: if the major value creation levers have been pulled, pricing taken, costs out, bolt-ons integrated, then the next owner is better placed to pull the levers you cannot.
    3. Market timing: sector multiples elevated, strategic buyers active, credit markets open. You sell into strength, and sponsors who wait for the last increment of EBITDA often sell into a worse market.
    4. The story matters as much as the numbers. An asset sells best when it has a credible growth narrative left for the next owner. Selling a business with nothing left to do is much harder.
    5. Then the constraints: fund life, limited partner pressure for distributions, and the need to show DPI before raising the next fund. These are real and they do influence timing, and a candidate who pretends otherwise is not being honest.
    6. The alternatives when the timing is wrong: a dividend recap to return capital, a partial sale, or a continuation vehicle. Being forced to sell at the bottom is the outcome all three are designed to avoid.

    Where candidates lose it

    Ignoring the fund life and fundraising pressure. It is a genuine driver of exit timing and pretending decisions are purely analytical is naive. Name it, then explain the tools that exist to avoid being forced.

    Expect next

    • What if the exit market is closed?
    • How does the next fundraise affect timing?
    • Who would buy it and why?

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.