Role-specific Private Equity Interview Questions & Answers:
1. What is secondary investment?
Secondary investments refer to investments made in existing private equity assets. These transactions can involve the sale of private equity fund interests or portfolios of direct investments in privately held companies through the purchase of these investments from existing institutional investors. By its nature, the private equity asset class is illiquid, intended to be a long-term investment for buy and hold investors. Secondary investments provide institutional investors with the ability to improve vintage diversification particularly for investors that are new to the asset class.
Infrastructure investments in various public works (e.g., bridges, tunnels, toll roads, airports, public transportation and other public works) that are made typically as part of a privatization initiative on the part of a government entity.
3. What does limited by shares mean?
Limited by shares means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder's personal assets are thereby protected in the event of the company's insolvency, but money invested in the company will be lost.
4. Tell me about private company limited?
A private company limited by shares, usually called a private limited company (Ltd.) (though this can theoretically also refer to a private company limited by guarantee), is the private limited type of company incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth countries and the Republic of Ireland. It has shareholders with limited liability and its shares may not be offered to the general public, unlike those of a public limited company (plc).
5. Describe unlimited company?
An unlimited company or private unlimited company is a hybrid company (corporation) incorporated either with or without a share capital (and similar to its limited company counterpart) but where the legal liability of the members or shareholders is not limited, that is, its members or shareholders have a joint, several and non-limited obligation to meet any insufficiency in the assets of the company to enable settlement of any outstanding financial liability in the event of the company's formal liquidation. The joint, several and non-limited liability of the members or shareholders of the company to meet any insufficiency in the assets of the company (to settle its outstanding liabilities if any exist) only applies upon the formal liquidation of the company. Therefore, prior to any such formal liquidation of the company, any creditors or security holders of the company may only have recourse to the assets of the company and not to those of its members or shareholders.
6. What are the disadvantages of a public company's securities?
Publicly traded companies are generally required to have their accounts audited by outside auditors and then publish the accounts to their shareholders. Besides the cost, this may make useful information available to competitors. Various other annual and quarterly reports are also required by law.
7. What are the advantages of a public company's securities?
Publicly traded companies are able to raise funds and capital through the sale (in the primary or secondary market) of their securities, whether debt or equity. This is the reason publicly traded corporations are important prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. The profit on stock or bonds is gained in form of dividend or capital gain to the holders of such securities.
The financial media and analysts will be able to access additional information about the business.
An investment that purchases a consistent revenue stream deriving from the payment of royalties. One growing subset of this category is the healthcare royalty fund, in which a private equity fund manager purchases a royalty stream paid by a pharmaceutical company to a drug patent holder. The drug patent holder can be another company, an individual inventor or some sort of institution, such as a research university.
9. Tell me about fund of funds?
Investments made in a fund whose primary activity is investing in other private equity funds.
The fund of funds model is used by investors looking for:
☛ Diversification but have insufficient capital to diversify their portfolio by themselves
☛ Access to top performing funds that are otherwise oversubscribed
☛ Experience in a particular fund type or strategy before investing directly in funds in that niche
☛ Exposure to difficult-to-reach and/or emerging markets
Superior fund selection by high-talent fund of fund managers/teams
Negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies.
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