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. 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. 009Would you invest in a company with negative sales growth?Investment judgementHardtechnicalPlatinum EquityGeneralist · Los Angeles · 2014

   Say this

   Yes, if the cash flow is durable and the price reflects the decline. Plenty of private equity is made in declining industries, where the discipline is to buy cheap, take out cost, and pay the equity back through cash rather than growth.

   Then walk it

   1. Declining revenue is not disqualifying. What matters is whether cash flow is predictable and whether the decline rate is stable and forecastable.
   2. Distinguish managed decline from collapse. A business losing 2 to 3 percent of revenue a year with 25 percent margins and no CapEx is a bond with an equity kicker. One losing 20 percent a year is a liquidation.
   3. The model works differently: value comes from cash extraction and deleveraging, not from growth or multiple expansion. You underwrite to getting your money back through cash flow and dividends, and treat the exit as upside.
   4. Leverage must be sized to the declining EBITDA, not today's. Covenants set against current EBITDA will breach in year three if the decline continues, which is how these deals actually fail.
   5. Operationally the plan is cost, pricing and consolidation. Buying declining competitors and stripping their overhead is a well-established strategy in end-of-life industries.
   6. The exit is the hard part. Strategic buyers in a declining sector are scarce, so you should underwrite assuming a lower exit multiple than entry, and check that the deal still works.

   Where candidates lose it

   Reflexively saying no. This question is asked specifically by funds that do exactly these deals, and a candidate who cannot see the cash-extraction case has only learned the growth playbook. Say yes, then name the conditions.

   Expect next

   • How would you leverage it?
   • How do you exit a declining business?
   • What decline rate would be too fast?

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

3. 014How much would you pay for a security that returns two times your money on a 12 percent PIK with no compounding?Credit and financingHardtechnicalApollo Global ManagementGeneralist · New York · 2019

   Say this

   Work out how long it takes to double at 12 percent simple. With no compounding, the accrual is 12 percent of par each year, so you double in a little over eight years. Then discount that to whatever return you require.

   Then walk it

   1. No compounding means simple interest: 12 percent of the original principal accrues each year, so the balance reaches two times par after 100 divided by 12, which is 8.33 years.
   2. So the instrument pays 2.0 times at year 8.33 if you buy at par.
   3. Now discount at your target. At a 15 percent required return, the present value of 2.0 in 8.33 years is 2.0 divided by 1.15 to the power 8.33, which is roughly 0.63 times par.
   4. So you would pay around 63 cents on the dollar to earn 15 percent. At a 20 percent target the price drops to roughly 45 cents.
   5. Then the credit judgement, which is the real content: PIK means no cash comes in for eight years, so your entire return depends on the borrower surviving and being able to refinance the accreted balance at maturity. That balance will be twice what you lent.
   6. So I would want to see enterprise value coverage at maturity against that grown claim, not against today's. If the business cannot support twice the debt in eight years, the security is worth far less than the arithmetic suggests.

   Where candidates lose it

   Treating it as compounding, which gives about six years instead of eight, or stopping at the arithmetic without the credit judgement. The point of a PIK question is the accreting claim and the refinancing risk at maturity.

   Expect next

   • What if it compounded?
   • What coverage would you need at maturity?
   • Does PIK increase or decrease enterprise value?

   Reported by candidates at Apollo Global Management (Generalist, New York, 2019). Source: Wall Street Oasis.

4. 015Why are shareholder loans used in a capital structure instead of just cash equity?Credit and financingHardtechnicalNUNuveenPrivate Equity · London · 2024

   Say this

   Mainly tax and flexibility. Interest on a shareholder loan is deductible where equity dividends are not, and a loan can be repaid without the formalities and restrictions that apply to returning share capital.

   Then walk it

   1. Tax efficiency is the primary driver: interest accrued to the sponsor's loan reduces taxable profit at the operating company, creating a shield that pure equity does not.
   2. Repayment flexibility: loan principal and accrued interest can be repaid as cash allows, whereas returning share capital often requires distributable reserves and legal formalities.
   3. Ranking and structuring: shareholder loans sit above equity in the waterfall, which matters when there are multiple equity holders, minority co-investors or management shareholders with different entry points.
   4. Allocation between investors: a loan with a fixed accrual gives the sponsor a preferred return ahead of the ordinary equity, which is how management's incentive equity gets structured to only pay out above a hurdle.
   5. The constraints to name: thin capitalisation rules, interest deductibility caps, and transfer pricing rules on the rate charged. Many jurisdictions have tightened these considerably, and the EU's anti-tax-avoidance rules limit the benefit.
   6. This is standard in European buyouts and infrastructure, and less so in the US, which is worth flagging since the structure is jurisdiction-dependent.

   Where candidates lose it

   Answering only 'it is tax efficient'. The ranking and the role in allocating returns between sponsor and management equity are the structuring content, and naming thin capitalisation rules shows you know the limits.

   Expect next

   • What limits the tax benefit?
   • How does this interact with management's incentive equity?
   • Walk me through an SPV model.

   Reported by candidates at Nuveen (Private Equity, London, 2024). Source: Wall Street Oasis.

5. 016Walk me through an SPV or holding company model.LBO mechanicsHardtechnicalNUNuveenPrivate Equity · London · 2024

   Say this

   Model the operating asset first, then layer the holding structure on top: cash flows rise from the asset through the acquisition vehicle, paying debt at each level in order, and whatever reaches the top is the sponsor's return.

   Then walk it

   1. Build the asset-level model: revenue, costs, taxes, CapEx and working capital, producing operating cash flow available for debt service.
   2. Then the asset-level or senior debt: interest, amortisation, and the debt service cover ratio. Lock-up tests at this level determine whether cash can move upward at all, which is the key structural feature.
   3. Cash that passes the tests distributes up to the holding company. There it services any holdco debt or shareholder loan, which is structurally subordinated because it sits behind the operating company's lenders.
   4. Whatever remains is distributable to the sponsor, so the equity return is computed on distributions received rather than on accounting profit.
   5. Model the tax and the group structure explicitly: where the deductions arise, whether losses can be surrendered between entities, and withholding on cross-border payments.
   6. The output is an equity IRR on the sponsor's cash flows, with the distribution lock-up tests as the thing to sensitise. In infrastructure especially, a covenant breach does not mean default, it means the cash stops flowing upward, and that alone can destroy the equity return.

   Where candidates lose it

   Modelling it as a single-entity LBO. The distinctive content is structural subordination and the distribution lock-up tests that trap cash at the operating company. Those tests are usually what breaks the equity case.

   Expect next

   • What is structural subordination?
   • What happens if the DSCR test is breached?
   • Why do infrastructure deals use this structure?

   Reported by candidates at Nuveen (Private Equity, London, 2024). Source: Wall Street Oasis.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

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.