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. 006Explain the fund structure: management fee, carry, hurdle and catch-up.Fund economicsHardtechnicalKohlberg Kravis RobertsInvestor Relations · New York · 2025

   Say this

   Classic terms are two and twenty over an eight percent hurdle. The manager takes 2 percent a year on committed capital, and 20 percent of profits, but only after investors have received their capital back plus an 8 percent preferred return.

   Then walk it

   1. Management fee: around 2 percent on committed capital during the investment period, often stepping down to invested capital afterwards. It funds the firm's operations, not the partners' upside.
   2. Preferred return or hurdle: usually 8 percent. Limited partners receive their capital back plus this return before the manager earns any carry.
   3. Catch-up: once the hurdle is met, the manager typically receives 100 percent of subsequent distributions until it has caught up to 20 percent of total profits. Then the split reverts to 80/20.
   4. Carried interest: the manager's 20 percent share of profits. This is where partners actually make money and why alignment is claimed.
   5. Clawback: if early distributions gave the manager carry that later losses erase, it must be returned. This is what makes the whole structure defensible over a fund's life.
   6. The distinction that matters: European waterfall distributes on a whole-fund basis, so carry is only paid once the entire fund clears the hurdle. American waterfall is deal-by-deal, so carry can be paid earlier. Limited partners strongly prefer the European version, and knowing which a firm uses is a real signal of preparation.

   Where candidates lose it

   Reciting 'two and twenty' without the hurdle, catch-up and clawback. Those three are what make the structure work, and the European versus American waterfall distinction is what separates a prepared candidate from a general one.

   Expect next

   • What is the difference between a European and American waterfall?
   • What is a clawback?
   • How would you highlight the fund to an endowment versus a fund of funds?

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

2. 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.

3. 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.

4. 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.

5. 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.

6. 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?

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.