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

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Type

AnyTechnicalCaseFitMarket viewBrainteaser

1. 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.

2. 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?
3. 046How would you diligence a founder-run business?Due diligenceHardsuperdayAudax GroupPrivate Equity · Boston · 2021HIH.I.G. CapitalPrivate Equity · Paris · 2024

   Say this

   Assume the reporting is weaker than it looks and the founder is more central than anyone admits. The two questions are what the real earnings are, and what happens to the business when the founder steps back.

   Then walk it

   1. Financial reporting is usually thin. There may be no audited accounts, no management accounts by segment, no unit-level profitability. Budget more time and money for quality of earnings than you would for a corporate carve-out.
   2. Personal expenses run through the business are standard: cars, travel, family on the payroll, property. These are legitimate add-backs but each needs verification, and they are also a signal about controls.
   3. Founder dependency is the core risk. Which customer relationships are personal? Who actually makes pricing decisions? Is there a second layer of management, or does everything route through one person?
   4. Test it concretely: ask what happened when the founder took a long holiday. Ask the customers who they call. The answers are usually revealing.
   5. Related-party arrangements: property leased from a founder-owned entity, supply from a family business, loans in both directions. All need to be put on arm's-length terms before closing.
   6. Then structure around what you find. Rollover equity and an earnout keep the founder engaged; a transition agreement with defined handover milestones; and building the second layer of management is usually the first hundred days priority.

   Where candidates lose it

   Treating it like a corporate diligence. The distinctive risks are informal reporting, personal expenses and founder dependency, and the answer should end with how you structure around them rather than just listing them.

   Expect next

   • How would you structure the founder's rollover?
   • What if the founder wants to leave immediately?
   • How do you value a business where the owner works unpaid?

   Reported by candidates at Audax Group (Private Equity, Boston, 2021); H.I.G. Capital (Private Equity, Paris, 2024). Source: Wall Street Oasis.

4. 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?
5. 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?
6. 053If you had $100 million to invest in real estate today, where would you put it and why?Investment judgementHardsuperdayBlackstoneReal Estate · Vancouver · 2025InvescoReal Estate · Dallas · 2023

   Say this

   Pick a sector and a thesis rather than diversifying across everything. State the demand driver, the supply picture, and where pricing sits relative to replacement cost, then commit to a specific strategy.

   Then walk it

   1. Structure it as sector, then geography, then strategy, then structure. Avoid a balanced portfolio answer; the interviewer wants a view.
   2. The strongest arguments are supply-driven. Sectors where new construction has stopped because financing costs make development uneconomic will see rent growth as existing demand meets no new stock. Name the sector and the evidence.
   3. Demand drivers to reference: logistics and e-commerce penetration, data centres and power availability, residential undersupply in specific cities, healthcare and demographics. Avoid the generic office argument unless you have a genuinely contrarian case.
   4. Pricing discipline: compare the price per square foot to replacement cost. Buying below replacement cost means no rational developer competes with you until values rise meaningfully, which is the strongest margin of safety in real estate.
   5. Then the strategy: core, core-plus, value-add or opportunistic, and say which and why given where we are in the cycle. And whether you would prefer equity or, if pricing is unattractive, sitting higher in the capital structure in real estate debt.
   6. Then the risks: rate sensitivity on both NOI and the cap rate, the refinancing wall on existing loans, and what would make you wrong.

   Where candidates lose it

   Diversifying across five sectors to avoid being wrong. That is the safe answer and it scores poorly. Also ignoring debt: with elevated financing costs, real estate credit can be the better risk-adjusted expression of the same view, and saying so shows real judgement.

   Expect next

   • Why not real estate debt instead of equity?
   • What is your exit cap rate assumption?
   • How would you finance it?

   Reported by candidates at Blackstone (Real Estate, Vancouver, 2025); Invesco (Real Estate, Dallas, 2023). Source: Wall Street Oasis.

7. 054You own an underground car park in Mayfair with an empty floor and all the usual services already provided. What would you do with it?OperationsHardsuperdayHIH.I.G. CapitalPrivate Equity · Paris · 2024

   Say this

   Work out what the space is actually worth per square foot in that location, then find the highest-value use that does not need natural light, street frontage or planning permission you cannot get.

   Then walk it

   1. First establish the constraints, because they define the answer: no natural light, restricted access, ceiling height, ventilation, fire regulation, and whatever the lease and planning consent permit.
   2. Then the location advantage: Mayfair means extremely high-value residents and businesses within a very short radius, and extremely expensive surface space. So the value is in anything that needs proximity but not daylight.
   3. Candidate uses: secure storage for art, wine or documents, which is high margin and needs exactly these conditions; last-mile delivery and dark-store fulfilment; a gym or padel courts, which work well underground; data or telecoms infrastructure; or EV charging with premium pricing.
   4. Then size it properly rather than just listing ideas: rough square footage, achievable rent or revenue per square foot, the capital cost to convert, and the payback. Art and wine storage in central London commands a large multiple of parking revenue per square foot.
   5. Then check the downside: what is the reversibility of the conversion, and does it restrict a future sale of the whole asset?
   6. And the honest baseline: compare every option to simply improving the parking yield through dynamic pricing and monthly contracts, which costs nothing. Sometimes the best answer to a value-add question is that the incremental capital is not justified.

   Where candidates lose it

   Brainstorming a list with no numbers and no constraints. The test is commercial judgement under constraints: name the constraints first, size one or two options, and compare to the do-nothing baseline.

   Expect next

   • How would you size the storage opportunity?
   • What would you need to check in the lease?
   • What is the payback on your preferred option?

   Reported by candidates at H.I.G. Capital (Private Equity, Paris, 2024). Source: Wall Street Oasis.

8. 056How would you win a competitive auction without paying the highest price?Investment judgementHardsuperday

   Say this

   Sell certainty and speed. A seller values the probability of closing at the agreed price, so a buyer with committed financing, minimal conditions and demonstrated sector knowledge can win below the highest headline bid.

   Then walk it

   1. Certainty of closing is the currency. Fully committed financing, no financing condition, no regulatory issue, and a board already approved to transact all reduce execution risk for the seller.
   2. Speed: fewer diligence workstreams outstanding, a shorter exclusivity period, and a mark-up of the sale agreement that is close to the seller's draft.
   3. Fewer conditions: limited conditions precedent, a smaller escrow, and acceptance of warranty and indemnity insurance rather than seller indemnities.
   4. Sector credibility: a seller, especially a founder, cares who buys the business. Having owned adjacent assets, having a named operating partner, and being able to talk about the business specifically all matter more than people assume.
   5. Management support is often decisive. If the management team wants you, and the seller needs them to stay, your bid is worth more than a higher one from someone management distrusts.
   6. And the structural options: a higher proportion of cash at closing, taking on a liability the seller wants gone, or solving a timing problem the seller has. Understanding what the seller actually needs, which is not always the highest number, is the real skill.

   Where candidates lose it

   Assuming price always wins. Sellers routinely accept lower bids for certainty, especially founders and corporates with reputational exposure. Naming management support as a lever is the insight most candidates miss.

   Expect next

   • What is warranty and indemnity insurance?
   • How do you get management on side without breaching process rules?
   • When would a seller definitely just take the highest price?
9. 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?
10. 059How would you evaluate whether to lend to a construction company?Credit and financingHardsuperdayBain CapitalCredit · New York · 2024

    Say this

    Construction is one of the hardest credits there is: cyclical, low margin, with percentage-of-completion accounting that can hide problems and working capital that swings violently. I would underwrite the backlog quality and the contract structure before anything else.

    Then walk it

    1. Backlog is the revenue, so its quality is the credit. How much is contracted versus awarded, what is the execution timeline, and what is the cancellation risk?
    2. Contract structure is the single biggest determinant. Fixed-price contracts put inflation and overrun risk on the contractor; cost-plus contracts pass it to the customer. A book of fixed-price work signed before an inflation spike is where construction companies die.
    3. The accounting risk: percentage-of-completion recognises profit based on management's estimate of costs to complete. Optimistic estimates inflate current profit and reverse later. So I would test historical estimate accuracy, comparing forecast margin at each stage to the final outcome by project.
    4. Working capital is brutal: retentions held by customers, unbilled work in progress, and payables to subcontractors. Cash and profit diverge persistently, so I would underwrite cash conversion over several years rather than EBITDA.
    5. Then counterparty and concentration: who are the customers, are they creditworthy, and what happens if one large project is disputed? Construction disputes are slow and expensive.
    6. Given all of that, I would lend conservatively, at low leverage, with tight maintenance covenants and security over receivables, and I would want the historical record through a full cycle. If the business is mostly fixed-price with thin margins, I would probably pass.

    Where candidates lose it

    Applying a generic credit framework. The sector-specific risks are percentage-of-completion estimate manipulation and fixed-price contract exposure. Naming both, and saying how you would test estimate accuracy, is the answer.

    Expect next

    • How would you test their cost-to-complete estimates?
    • What covenants would you want?
    • What leverage would you actually lend at?

    Reported by candidates at Bain Capital (Credit, New York, 2024). 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.