investment case study private equity

Private Equity Case Study: Example, Prompts, & Presentation

Private equity case studies are an important part of the private equity recruiting process because they allow firms to evaluate a candidate’s analytical, investing, and presentation abilities. 

In this article, we’ll look at the various types of private equity case studies and offer advice on how to prepare for them. 

This guide will help you ace your next private equity case study, whether you’re a seasoned analyst or new to the field.

Types Of Private Equity Case Studies

Case studies are very common in private equity interviews, and they are a key part of the overall recruiting process.

While you’re extremely likely to encounter a case study of some kind during your recruiting process, there is considerable variety in the types of case studies you might face.

Below I cover the major types:

Take-home assignment

In-person lbo modeling assignment.

For this case study, you’ll get some company information (e.g. a 10-K or a CIM) and be asked to assess whether or not you’re likely to invest. 

Generally, you’ll get between 2-7 days to prepare a full presentation or investment memo with your recommendations that you’ll present to the interviewer.  To support your investment recommendation, you’ll be expected to complete a full LBO model .  The prompt may give certain details or assumptions to include in the model.

This type of test is most common during “off-cycle” hiring throughout the year, since firms have more time to allow you to complete the assignment. 

This is pretty similar to the take-home assignment. You’re given company materials, will build a financial model, and decide whether you would invest. 

The difference here is the time you’re given to complete the case. You’ll generally get between two to three hours, and you’ll typically complete the case study in the firm’s office, though some firms are becoming newly open to completing the assignment remotely. 

In this case, you’ll typically only complete an LBO model. There is usually no presentation or investment memo. Rather, you’ll do the model and then have a short discussion afterward. 

This is a shorter, more condensed version of an LBO model. You can complete a paper LBO with a piece of paper and a pen. Alternatively, you may be asked to discuss it verbally with the interviewer. 

Rather than using an Excel spreadsheet, you use an actual sheet of paper to show your calculations. You don’t go into all the detail but focus on the essence of the model instead. 

In this article, we’ll be focusing on the first two types of case studies because they are the most widely used. But if you’re interested, here is a deep dive on Paper LBOs . 

Private Equity Case Study Prompt

Regardless of the type of case study you’re asked to do, the prompt from the interviewer will ultimately ask you to answer: “would you invest in this company?”

To answer this question you’ll need to take on the provided materials about the company and complete a leveraged buyout model to determine whether there is a high enough return. Generally, this is 20% or higher. 

Usually, prompts also provide you with certain assumptions that you can use to build your LBO model. For example:

• Pro forma capital structure
• Financial assumptions
• Acquisition and exit multiples

Some private equity firms provide you with the Excel template needed for an LBO model, while others prefer you to make one from scratch. So be ready to do that. 

Private Equity Case Study Presentation

As you’ve seen above, if you get a take-home assignment as a case study, there’s a good chance you’re going to have to present your investment memo in the interview. 

There will usually be one or two people from the firm present for your presentation. 

Each PE firm has a different interview process, some may expect you to present first and then ask questions, or the other way around. Either way, be prepared for questions. The questions are where you can stand out!

While private equity recruitment is there to assess your skills, it’s not all about your findings or what your model says. The interviewers are also looking at your communication skills and whether you have strong attention to detail. 

Remember, in the private equity interview process, no detail is too small. So, the more you provide, the better. 

How To Do A Private Equity Case Study

Let’s look at the step-by-step process of completing a case study for the private equity recruitment process:

• Step 1: Read and digest the material you’ve been given. Read through the materials extensively and get an understanding of the company. 
• Step 2: Build a basic LBO model. I recommend using the ASBICIR method (Assumptions, Sources & Uses, Balance Sheet, Income Statement, Cash Flow Statement, Interest Expense, and Returns). You can follow these steps to build any model. 
• Step 3: Build advanced LBO model features, if the prompts call for it, you can jump to any advanced features. Of course, you want to get through the entire model, but your number 1 priority is to finish the core financial model. If you’re running out of time, I would skip or reduce time on advanced features.
• Step 4: Take a step back and form your “investment view”. I would try to answer these questions:
• What assumptions need to be present for this to be a good deal?
• Under what circumstances would you do the deal? 
• What is the biggest risk in the deal? (e.g. valuation, growth, and margins). 
• What is the biggest driver of returns in the deal? (e.g. valuation, growth, and debt paydown).

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How To Succeed In A Private Equity Case Study

Here are a few of my tips for getting through the private equity fund case study successfully. 

Get the basics down first

It’s very easy to want to jump into the more complex things first. If you go in and they start asking you to complete complex LBO modeling features like PIK preferred equity, getting to that might be on the top of your list. 

But I recommend taking a step back and starting with the fundamentals. Get that out the way before moving on to the complicated stuff. 

The fundamentals ground you, getting you through the things you know you can do easily. It also gives you time to really think about those complex ideas. 

Show nuanced investment judgment; don’t be too black-and-white

When giving your investment recommendation for a private equity fund you shouldn’t be giving a simple yes or no. 

It’s boring and gives you no space to elaborate. Instead, go in with what price would make you interested in investing and why. Don’t be shy to dig in here. 

Know where there is a value-creation opportunity in the deal, and mention the key assumptions you need to believe to create that value.

Additionally, if you are recommending that the investment move forward then bring up things you would want to know before closing a deal. You can highlight the key risks of the investment, or key things you’d want to ask management if you could meet with them. 

At the end of the day, financial modeling is a commodity skill.  Every investor can do it.  What will really set you apart is how you think about the deals, and the nuance you bring to analyzing them. 

You win by talking about the model

Along those lines, you don’t win by building the best model. Modeling is just a check-the-box thing in the interview process to show you can do it. The interviewers need to know you can do the basics with no glaring errors. 

What matters is showing that you can discuss the investment intelligently. It’s about bringing a sensible recommendation to the table with the information to back it up. 

How Do I Prepare For A Private Equity Case Study?

There is no one-size-fits-all when it comes to preparing for a private equity case study. Everyone is different. 

However, the best thing you can do is PRACTICE, PRACTICE, and more PRACTICE!

I know of a recent client that successfully obtained an offer from multiple mega funds . She practiced until she was able to build 10 LBO models from scratch without any errors or help … yes, that’s 10 models! 

Now, whether it takes 5 or 20 practice case studies doesn’t matter. The whole point is to get to a stage where you feel confident enough to do an LBO model quickly while under pressure. 

There is no way around the pressure in a private equity interview. The heat will be on. So, you need to prepare yourself for that. You need to feel confident in yourself and your capabilities. 

You’d be surprised how pressure can leave you stumped for an answer to a question that you definitely know.

It’s also a good idea to think about the types of questions the private equity interviewer might ask you about your investment proposal. Prepare your answers as far as possible. It’s important that you stick to your guns too when the situation calls for it, because interviewers may push back on your answers to see how you react.. 

You need to have your answer to “would you invest in this company?” ready, and also how you got to that answer (and what new information might change your mind).   

Another thing that gets a lot of people is limited time.  If you’re running out of time, double down on the fundamentals or the core part of the model.  Make sure you nail those.  Also, you can make “reasonable” assumptions if there’s information you wish you had, but don’t have access to. Just make sure to flag it to your interviewer 

How important is modeling in a private equity case study? 

Modeling is part and parcel of private equity case studies. Your basics need to be correct and there should be no obvious mistakes. That’s why practicing is so important. You want to focus on the presentation, but your calculations need to be correct first. They do, after all, make up your final decision. 

How can I stand out from other candidates? 

Knowing your stuff covers the basics. To stand out, you need to be an expert in showing how you came to a decision, a stickler for details, and inquisitive. Anyone can do the calculations with practice, but someone who thinks clearly and brings nuance to their discussion of the investment will thrive in interviews. 

Private equity case studies are a difficult but necessary part of the private equity recruiting process . Candidates can demonstrate their analytical abilities and impress potential employers by understanding the various types of case studies and how to approach them. 

Success in private equity case studies necessitates both technical and soft skills, from analyzing financial statements to discussing the investment case with your interviewer. 

Anyone can ace their next private equity case study and land their dream job in the private equity industry with the right preparation and mindset. If you’re looking to learn more about private equity, you can read my recommended Private Equity Books.

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MASTERING PRIVATE EQUITY CASE STUDIES: A COMPREHENSIVE GUIDE

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​ Having progressed through the initial stages outlined in our preparation guide , you are now about to enter the case study phase of the interview process. This stage closely mirrors the tasks you'll perform on the job, testing your analytical skills, strategic thinking, and investment rationale. 

Regardless of the level you enter the fund at, the case study is a generally accepted practice and forms one of the three key pillars of any successful interview process: structured interviews, work–based tests, and psychometric assessments based on empirical evidence.

To help you succeed, this guide delves into the nuances of PE case studies, offering insights from industry experts and best practices.

The Essence of the PE Case Study

A private equity case study typically requires evaluating a potential investment opportunity. You’ll receive an Information Memorandum (IM) for a company the PE firm could consider investing in, potentially some supporting information (industry news/benchmarking), and possibly a part-completed model (though often you are asked to prepare this from scratch). Your task is to value the company and formulate an investment proposal, including whether or not to invest. Keep in mind that this task may not be exclusive. The key lies not only in your final decision but also in the depth and logic of your analysis.

Types of PE Case Studies:

1. paper lbo/dcf.

A Paper LBO/DCF involves a simplified leveraged buyout or discounted cashflow model performed on paper or verbally, focusing on core concepts without the aid of a computer.

Preparation Strategy

Understand Core Concepts: Be well-versed in the fundamentals of LBO and DCF models.

Practice-Without Tools: Get comfortable performing calculations manually or explaining your thought process clearly without visual aids.

2. Timed LBO Modelling Test

A Timed LBO Modelling Test is a fast-paced, 1-3 hour on-site or remote test focused on speed and accuracy. These are often designed to understand the gaps in your skill-set, so it is not about achieving the perfect result, but creating a well thought-through working model. It is therefore important to pace yourself and breakdown what to focus on and when before you start.

Speed and Accuracy: Hone your Excel skills and practice building LBO models quickly.

Simulate Test Conditions: Replicate the pressure of a timed test to build your endurance and efficiency.

3. Take-home LBO Model and Presentation

The Take-home LBO Model and Presentation involves a comprehensive analysis where you might have a weekend or a week to build a full LBO model and prepare a detailed investment recommendation. Typically, you will then be asked to submit your findings and return to present 

Detailed Analysis: Conduct thorough research and develop a comprehensive model. Ensure the numbers balance and that you are not making assumptions based on incorrect data.

Effective Presentation: Focus on creating a clear, concise, and compelling presentation of your findings and recommendations.

4. Commercial Case Studies

Commercial case studies are less frequently used but typically deployed when you come from a non-financial background, such as commercial consulting or industry. In this scenario, you are either presented with a CIM or some high-level information about a business and then asked to think through aspects like business model, unit economics, market dynamics, growth opportunities, investment risks, KPIs, and areas of additional diligence.

Develop a Structured Approach: Create a framework for methodically analysing businesses. Practice with a few random CIMs you can find online. Example framework:

Revenue Generation: How does the business generate revenue? What does it sell, and how does it sell these products or services?

Revenue Evolution: How is the company’s ability to generate revenue likely to evolve? What are its growth prospects?

Direct Costs: What are the direct costs associated with its revenue streams? Is it a people-oriented cost structure, a SaaS business, or a materials-based cost structure?

Indirect Costs: What indirect costs are required to drive revenue? Consider factors like sales intensity and capital intensity.

Financial Understanding: Understand growth rates, margin profiles, operating leverage, unit economics, and cash flow profiles.

Market Positioning and Dynamics: Where is the business positioned in the value chain? What external factors, such as changing market dynamics and competition, will impact the business model

Dissecting the Case Study

To effectively analyse a potential investment in a private equity case study, it is crucial to break down the company and its environment into several key areas. Each aspect provides insight into different facets of the business and its viability as an investment. This section outlines the essential components you should examine, from industry dynamics to the specifics of the transaction, ensuring a comprehensive analysis.

Industry Analysis

Key Products and Markets: Understand the company’s primary products and markets and the main demand drivers.

Market Participants and Competition: Analyse the competitive landscape and the intensity of competition.

Industry Cyclicality: Determine the cyclical nature of the industry and external factors influencing it, such as regulatory changes or economic cycles.

Company Analysis

Position in Industry: Assess the company’s market position and growth trajectory.

Operational Leverage and Margins: Evaluate the cost structure and sustainability of margins.

Management and Cash Needs: Consider the effectiveness of the management team and the company’s working capital requirements.

Financial Analysis

Revenue Drivers and Stability: Identify revenue drivers, growth potential, and stability.

Cost Structure: Examine supplier diversity, fixed versus variable costs, and capex requirements.

Competitive Analysis: Assess industry concentration, buyer and supplier power, brand strength, and potential substitutes.

Growth Prospects

Scalability and Efficiency: Evaluate scalability and potential efficiency improvements.

Due Diligence: Consider environmental, legal, and operational risks.

Transaction Analysis

LBO Model: Build a leveraged buyout model to project financial performance and returns.

Valuation and Debt Capacity: Justify your valuation and the company’s ability to raise and service debt.

Exit Opportunities: Assess potential exit strategies and their impact on returns.

Building a Leveraged Buyout Model

Creating a full 3-statement model is crucial, and it's important to ensure it balances. You will typically build this from scratch, and we recommend a buyout overlay (especially for large-cap funds). While formatting isn't a primary concern, the model should lead you to a clear view of the deal's merits and risks, culminating in a definitive recommendation—whether to invest or not.

Key Components of the Model

Income Statement: Shows the company's revenue, expenses, and net income over a specific period.

Balance Sheet: Displays the company's assets, liabilities, and shareholder equity at a specific point in time, providing a financial snapshot.

Cash Flow Statement: This statement illustrates the company's cash inflows and outflows from operating, investing, and financing activities over a specific period.

Ensuring it balances is a core principle because it reflects the fundamental accounting equation: Assets = Liabilities + Shareholders' Equity. In simpler terms, everything a company owns (assets) must be financed by what it owes (liabilities) and the money invested by shareholders (equity). The 3-statement model is designed to be internally consistent, so changes in one statement should automatically flow through and impact the other statements, ensuring the balance sheet remains balanced.

Buyout Overlay

With a buyout overlay to the model, we can determine:

Financial Assumptions:

Buyout Price: Determine the price per share the private equity firm will pay for the company. Techniques for this can include:

Market Valuation Techniques

Market Multiples: Compares the target company's financial metrics to publicly traded companies in the same industry.

Transaction Multiples: Analyses recent M&A deals in the same industry.

Discounted Cash Flow (DCF) Valuation: Considers the target company's future cash flows, discounting them to their present value to arrive at a company valuation.

Financing Structure: Specify the debt and equity financing mix used to fund the buyout, impacting the company's capital structure and future cash flows.

Exit Strategy: Consider the private equity firm's expected exit timeline, influencing future growth assumptions.

Income Statement:

Impact on Revenue: Analyse if the buyout will affect the company's pricing strategy, market access, or growth initiatives.

Impact on Expenses: Consider potential changes in management structure, financing costs (interest on debt), or one-time transaction fees.

Balance Sheet:

Shareholder Equity Elimination: Upon buyout, existing shareholder equity gets replaced by new equity issued to the private equity firm.

Debt Assumption: Account for the new debt used to finance the buyout, increasing the company's liabilities.

Cash Flow Impact: Model the cash outflow for the buyout transaction and the ongoing cash flow implications of the new debt (interest payments).

Cash Flow Statement:

Financing Activities: Reflect the cash inflow from the debt portion of the buyout financing.

Debt Service: Include the cash outflow for ongoing interest payments on the new debt.

Iteration and Sensitivity Analysis:

Refine Assumptions: Based on industry benchmarks and company-specific factors.

Perform Sensitivity Analysis: See how variations in buyout price, financing structure, or growth assumptions impact the model's outputs.

Presenting Back to the Business

Effectively presenting your analysis to the business is a critical part of the private equity case study process. This step involves synthesising your findings into a clear and compelling narrative that highlights the company’s strengths, weaknesses, opportunities, and threats (SWOT analysis). By doing so, you can provide a comprehensive view of the potential investment, showcasing both its merits and risks. Here’s a detailed breakdown of what to consider when presenting your findings to ensure a thorough and persuasive presentation.

Strengths (Internal - Positive)

Financial Performance: Examine profitability (margins, net income), revenue growth, and cash flow generation.

Competitive Advantage: Identify unique selling propositions or strategic advantages.

Management Team: Evaluate the management team's experience, track record, and expertise.

Product/Service: Consider the quality, innovation, and market demand for the company's offerings.

Operational Efficiency: Analyse production processes, inventory management, and cost structure.

Weaknesses (Internal - Negative)

Financial Performance: Identify weaknesses in profitability, cash flow, or high debt levels.

Market Position: Assess the company’s competitive challenges.

Product/Service: Evaluate the relevance and competitiveness of products or services.

Operational Inefficiencies: Identify inefficiencies in production, supply chain, or overhead costs.

Management Team: Assess any gaps in management experience or track record.

Opportunities (External - Positive)

Market Growth: Identify growth potential in the target market.

Industry Trends: Leverage favourable industry trends.

Technology Advancements: Consider new technologiesto enhance the company's products or services.

Acquisitions: Explore potential acquisitions or partnerships.

Economic Conditions: Evaluate positive economic factors that could benefit the company.

Threats (External - Negative)

Market Competition: Assess the impact of increasing competition.

Economic Downturn: Consider the potential impact of economic slowdowns.

Regulatory Changes: Identify new regulations that could increase costs or restrict operations.

Technological Disruption: Evaluate the threat of emerging technologies.

Political Instability: Consider the impact of political or economic instability in the company’s operating regions.

Key Tips for Success

Prioritise depth over breadth.

Concentrate on the most crucial elements of your analysis. It's better to delve deeply into a few critical points than to cover too many topics superficially.

Simulate Realistic Conditions

Practice under time constraints to enhance your speed and accuracy. Replicating the pressure of a real case study will help you perform better during the actual interview.

Utilise Mock Case Studies

Engage with mock case studies and seek feedback from industry professionals. This will help you refine your approach and improve your analytical skills.

Be Honest and Transparent

If you don’t know the answer to a question, admit it. Honesty is valued over attempting to bluff, as interviewers can easily spot insincerity.

Align with the Firm’s Philosophy

Customise your analysis to match the investment strategy of the private equity firm you are interviewing. Understanding and reflecting on the firm’s investment style can distinguish you from other candidates.

Succeeding in a private equity case study requires a blend of analytical rigour, strategic insight, and effective communication. The process tests your technical skills and ability to think like an investor and articulate your ideas clearly. Here are the key takeaways to ensure success:

Analytical Rigour: Dive deep into financial data to uncover meaningful insights. Develop a robust understanding of the company's financial health through detailed analysis of income statements, balance sheets, and cash flow statements.

Strategic Insight: Go beyond numbers. Assess the company's market position, competitive landscape, growth prospects, and potential risks. Identify where value can be created and understand the broader industry dynamics.

Effective Communication: Your ability to present your findings clearly, concisely, and compellingly is crucial. Ensure your presentation is structured logically, highlights the key points, and supports your investment thesis with solid evidence.

Value Creation Focus: Always keep the potential for value creation at the forefront of your analysis. Consider how operational improvements, strategic repositioning, or market expansion can enhance the company's value.

Practice and Preparation: Simulate real case study conditions to build speed and accuracy. Engage with mock case studies and seek feedback from industry professionals to refine your approach.

Customisation: Tailor your analysis to align with the specific investment philosophy of the PE firm you’re interviewing with. Understanding the firm's strategy and past investments can provide valuable context and make your presentation more relevant.

Focusing on these areas can demonstrate your potential as a valuable investment professional. Remember, the case study is not just a test of your analytical abilities but a showcase of how you approach problem-solving and decision-making in a real-world context.

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Private Equity Case Study: Tips, Prompt & Presentation

Private equity case studies serve as a pivotal stage in recruitment. They offer firms a window to assess candidates' analytical, investing, and presentation skills. Understanding the nuances of these case studies can significantly enhance your preparation and success rate.

This comprehensive guide provides insights into the types of case studies, preparation strategies, and key aspects of presentation and analysis. Whether you're new to private equity or a seasoned professional, mastering these case studies is essential for succeeding in a competitive industry.

What Should You Expect in a Private Equity Case Study?

Private equity case studies are a critical component of the recruitment process, offering firms a valuable opportunity to assess candidates' analytical, investing, and presentation skills. Understanding what to expect in a private equity case study can significantly enhance your preparation and improve your chances of success.

What are the Types of Private Equity Case Studies?

Private equity case studies can take various forms, each presenting its unique set of challenges. Candidates can anticipate encountering one of the following formats.

• Candidates are provided with company information and tasked with evaluating the feasibility of an investment. This type of case study typically involves preparing a comprehensive presentation or investment memo, supported by a detailed LBO (leveraged buyout) model, within a specified timeframe.
• Candidates are granted several days to a week to research a company, develop a model, and formulate a recommendation for or against an acquisition. This type of case study necessitates critical thinking and external research.
• Similar to the take-home assignment, but completed on-site at the firm's office within a few hours. Candidates must construct a financial model and make an investment decision based on the provided information.
• A 1-3-hour test, either conducted on-site or remotely, where candidates must swiftly build an LBO model. Proficiency in Excel shortcuts and familiarity with modelling tests are crucial for success.
• A condensed version of an LBO model completed either on paper or verbally. This type of case study focuses on the fundamental aspects of the model and requires candidates to demonstrate their understanding without the use of Excel.
• Candidates construct a simple leveraged buyout model using pen-and-paper or mental calculations, estimating the internal rate of return (IRR) using rounded figures.

Preparation Strategies

To prepare effectively for a private equity case study, focus on developing your investment thesis, honing your presentation skills, and enhancing your ability to respond to questions thoughtfully. Remember, the complexity of your model is secondary to your capacity to construct a compelling argument for or against the investment.

How to Present a Private Equity Case Study?

Presenting a private equity case study requires a strategic and thorough approach to effectively convey your analysis and recommendations. Whether you're preparing for a take-home assignment or an in-person presentation, mastering the art of presentation is crucial for success in the private equity recruitment process.

The core question you'll encounter in any private equity case study is whether you would invest in the company under consideration. To answer this, you'll need to analyze the provided materials and construct a leveraged buyout (LBO) model to assess the potential return on investment. Typically, a return of 20% or higher is sought.

The case study prompt often includes specific assumptions to guide your LBO model construction, such as the pro forma capital structure, financial assumptions, and acquisition and exit multiples. Some firms may provide an Excel template for the LBO model, while others may expect you to create one from scratch.

Presentation

In a take-home assignment scenario, you'll likely be required to present your investment memo during the interview. This presentation is typically conducted in front of one or two representatives from the private equity firm.

The presentation format may vary among firms, with some expecting you to present first and then field questions, while others may prefer the reverse. Regardless of the format, be prepared to articulate your findings and respond to inquiries.

While technical proficiency is important in private equity recruitment, communication skills and attention to detail are equally critical. Interviewers will assess your ability to convey complex ideas clearly and concisely, as well as your meticulousness in addressing all aspects of the case study.

In the private equity interview process, every detail matters. Therefore, strive to provide a comprehensive and well-structured presentation, demonstrating your analytical rigour and ability to communicate effectively.

How to Do a Private Equity Case Study?

When tackling a private equity case study, a structured approach is crucial to deliver a comprehensive analysis and recommendations.

Step 1: Read and Understand the Material

Begin by thoroughly reading and understanding the provided materials. Gain insights into the company's background, industry dynamics, and financials.

Step 2: Construct a Basic LBO Model

Build a fundamental leveraged buyout (LBO) model using the ASBICIR method (Assumptions, Sources & Uses, Balance Sheet, Income Statement, Cash Flow Statement, Interest Expense, and Returns). This foundational model will underpin your analysis.

Step 3: Enhance Your LBO Model

Incorporate advanced features into your LBO model as required by the case study prompts. While it's essential to cover all aspects, prioritize completing the core financial model to ensure thoroughness.

Step 4: Develop Your Investment Thesis

Step back and formulate your investment view based on your analysis. Consider critical assumptions, conditions for proceeding with the investment, key risks, and primary drivers of returns.

Step 5: Craft Your Presentation

Organize your insights and analysis into a structured presentation. Clearly articulate your investment thesis, supporting analysis, and key findings.

Step 6: Practice Your Presentation

Rehearse your presentation to ensure clarity and confidence. Be prepared to engage in a discussion and defend your investment thesis.

Approaching a private equity case study with this methodical approach demonstrates your analytical prowess and strategic thinking.

How to Succeed in a Private Equity Case Study?

Succeeding in a private equity case study demands a strategic blend of analytical prowess, strategic acumen, and effective communication.

• Master the Fundamentals: Start by focusing on the foundational aspects of the case study before delving into the complexities. Build a solid understanding of financial modelling principles and investment analysis basics. This will provide you with a strong grounding to tackle more intricate tasks with confidence.
• Demonstrate Nuanced Investment Judgment: Avoid simplistic yes or no answers when presenting your investment recommendation. Instead, offer a nuanced analysis that considers the price point at which you would consider investing and the key assumptions driving your decision. Highlight potential avenues for value creation in the deal and discuss the primary risks and uncertainties involved.
• Engage in Meaningful Dialogue: While the ability to build complex financial models is important, what truly sets you apart is your capacity to think critically and engage in intelligent discussion about the investment. Focus on presenting a well-considered recommendation supported by solid reasoning and analysis. Be prepared to discuss your model and elaborate on your investment thesis clearly and concisely.
• Prioritize Substance Over Complexity: While showcasing your proficiency in financial modelling is essential, the goal is not to build the most intricate model. Concentrate on constructing a model that is accurate, logical, and well-structured. The true measure of success lies in your ability to derive meaningful insights from the model and utilize them to make informed investment decisions.
• Highlight Value-Creation Opportunities: In addition to identifying risks, emphasize the potential opportunities for value creation in the deal. Discuss how you would leverage these opportunities to enhance the company's performance and generate returns for investors.

By following these strategies, you can significantly enhance your prospects of success in a private equity case study. Demonstrating your ability to think critically, analyze investments, and communicate effectively will showcase your thought leadership and analytical prowess.

How Do I Prepare for a Private Equity Case Study?

Preparing for a private equity case study requires a structured approach and a solid understanding of the fundamentals of financial analysis and investment evaluation.

• Understand the Case Study Objective: Begin by understanding the objective of the case study, which is typically to evaluate the investment potential of a company. Familiarize yourself with the key concepts and methodologies used in private equity investing.
• Review Financial Modeling Basics: Brush up on your financial modelling skills, focusing on key concepts such as revenue forecasting, expense modelling, and valuation techniques. Practice building and analyzing financial models to prepare for the case study.
• Familiarize Yourself with LBO Modeling: Since leveraged buyout (LBO) modelling is a common aspect of private equity case studies, make sure you are comfortable with building LBO models. Understand the key components of an LBO model, such as debt structure, cash flow projections, and exit strategies.
• Practice Case Studies: Practice solving case studies to hone your analytical skills and improve your ability to think critically. Look for case studies online or create your own based on real-world scenarios to simulate the interview experience.
• Stay Updated on Industry Trends: Keep yourself informed about the latest trends and developments in the industries you are interested in. This will help you make informed assumptions and recommendations during the case study.
• Develop a Structured Approach: Develop a structured approach to solving case studies, including how you will analyze the company's financials, identify key risks and opportunities, and formulate your investment thesis.
• Seek Feedback: Seek feedback from mentors, peers, or professionals in the field to improve your case study skills. Consider participating in case study competitions or workshops to gain practical experience.

FAQs (Frequently Asked Questions)

1. How do you approach a private equity case study? Approach a private equity case study by understanding the objective, reviewing financial basics, practicing LBO modelling, staying updated on industry trends, and developing a structured analysis approach.

2. How can I stand out from other candidates? Stand out by demonstrating nuanced investment judgment, engaging in meaningful dialogue, prioritizing substance over complexity in modelling, and highlighting value-creation opportunities.

3. What is the role of modelling in a private equity case study? Modelling plays a crucial role in a private equity case study as it helps evaluate investment potential, assess risks, and determine the feasibility of an acquisition.

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Private Equity Interviews 101: How to Win Offers

If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking . Thanks for visiting!

Private equity interviews can be challenging, but for most candidates, winning interviews is much tougher than succeeding in those interviews.

You do not need to be a math genius or a gifted speaker; you just need to understand the recruiting process and basic arithmetic.

Still, there is more to PE interviews than “2 + 2 = 4,” so let’s take a detailed look at the process:

How to Network and Win Private Equity Interviews

The Private Equity recruiting process differs dramatically depending on your current job and location.

Here are the two extremes:

• Investment Banking Analyst at a Bulge Bracket or Elite Boutique in New York: The process will be highly structured, and interviews will finish at warp speed. In some ways, your bank, group, and academic background matter more than your skill set or deal experience. This one is known as the “on-cycle” process.
• Non-Banker in Another Part of the U.S. or World: The process will be far less structured, it may extend over many months, and your skill set and deal/client experience will matter a lot more. This one is known as the “off-cycle” process.

If you’re in between these categories, the process will also be in between these extremes.

For example, if you’re at a smaller bank in NY, you may complete some on-cycle interviews, but you will almost certainly also go through the off-cycle process at smaller firms.

If you’re in London, there will also be a mix of on-cycle and off-cycle processes, but they tend to start later and move more slowly than the ones in NY.

We have covered PE recruiting previously ( overall process and what to expect in the on-cycle process ), so I am not going to repeat everything here.

Interviews in both on-cycle and off-cycle processes test similar topics , but the importance of each topic varies.

The timing of interviews and start dates, assuming you win offers, also differs.

The Overall Private Equity Interview Process

Regardless of whether you recruit in on-cycle or off-cycle processes, or a combination of both, almost all PE interviews have the following characteristics in common:

• Multiple Rounds: You’ll almost always go through at least 2-3 rounds of interviews (and sometimes many more!) where you speak with junior to senior professionals at the firm.
• Topics Tested: You’ll have to answer fit/background questions, technical questions, deal/client experience questions, questions about the firm’s strategies and portfolio, market/industry questions, and complete case studies and modeling tests.

The differences are as follows:

• Timing and Time Frame: If you’re at a BB/EB bank in NY, and you interview with mega-funds, the process starts and finishes within several months of your start date at the bank (!), and it moves up earlier each year. Interviews at the largest firms start and finish in 24-48 hours, with upper-middle-market and middle-market firms beginning after that.

By contrast, interviews start later at smaller PE firms, and the entire process may last for several weeks up to several months.

• Importance of Topics Tested: At large funds and in the on-cycle process, you need to complete modeling tests quickly and accurately and spin your pitches and early-stage deals into sounding like real deals; at smaller funds and in off-cycle interviews, the reasoning behind your case studies/modeling tests and your real experience with clients and deals matter more.

Firm-specific knowledge and fitting your investment recommendations to the firm’s strategies are also more important.

• Start Date: You interview far in advance if you complete the on-cycle process, and if you win an offer, you might start 1.5 – 2.0 years later. With the off-cycle process, you start right away or soon after you win the offer.

Private Equity Interview Topics

There is not necessarily a correlation between the stage of interviews and the topics that will come up.

You could easily get technical questions early on, and you’ll receive fit/background and deal experience questions throughout the process.

Case studies and modeling tests tend to come up later in the process because PE firms don’t want to spend time administering them until you’ve proven yourself in previous rounds.

However, there are exceptions even to that rule: For example, many funds in London start the process with modeling tests because there’s no point interviewing if you can’t model.

Here’s what to expect on each major topic:

Fit/Background Questions: “Why Private Equity?”

The usual questions about “ Why private equity ,” your story , your strengths/weaknesses , and ability to work in a team will come up, and you need answers for them.

We have covered these in previous articles, so I’ve linked to them above rather than repeating the tips here.

Since on-cycle recruiting takes place at warp speed, you’ll have to draw on your internship experience to come up with stories for these questions, and you’ll have to act as if PE was your goal all along.

By contrast, if you’re interviewing for off-cycle roles, you can use more of your current work experience to answer these questions.

While these questions will always come up, they tend to be less important than in IB interviews because:

• In on-cycle processes, it’s tough to differentiate yourself – everyone else also did multiple finance internships and just started their IB roles.
• They care more about your deal experience, whether real or exaggerated, in both types of interviews.

Technical Questions For PE

The topics here are similar to the ones in IB interviews: Accounting, equity value and enterprise value , valuation/DCF, merger models, and LBO models.

If you’re in banking, you should know these topics like the back of your hand.

And if you’re not in banking, you need to learn these topics ASAP because firms will not be forgiving.

There are a few differences compared with banking interviews:

• Technical questions tend to be framed in the context of your deal experience – instead of asking generic questions about the WACC formula , they might ask how you calculated it in one specific deal.
• More critical thinking is required. Instead of asking you to walk through the financial statements when Depreciation changes, they might describe companies with different business models and ask how the financial statements and valuation would differ.
• They focus more on LBO models, quick IRR math , and your ability to judge deals quickly.

Most interviewers use technical questions to weed out candidates , so poor technical knowledge will hurt your chances, but exceptional knowledge won’t necessarily get you an offer.

Talking About Deal/Client Experience

This category is huge, and it presents different challenges depending on your background.

If you’re an Analyst at a large bank in New York, and you’re going through on-cycle recruiting, the key challenge will be spinning your pitches and early-stage deals into sounding like actual deals.

If you’re at a smaller bank, and you’re going through off-cycle recruiting, the key challenge will be demonstrating your ability to lead, manage, and close deals .

And if you’re not in investment banking, the key challenge will be spinning your experience into sounding like IB-style deals.

Regardless of your category, you’ll need to know the numbers for each deal or project you present, and you’ll need a strong “investor’s view” of each one.

That’s quite a bit to memorize, so you should plan to present, at most, 2-3 deals or projects.

You can create an outline for each one with these points:

• The company’s industry, approximate revenue/EBITDA, and multiples (or, for non-deals, estimated costs and benefits).
• Whether or not you would invest in the company’s equity/debt or acquire it (or, for non-deals, whether or not you’d pursue the project).
• The qualitative and quantitative factors that support your view.
• The key risk factors and how you might mitigate them.

If you just started working, pick 1-2 of your pitches and pretend that they have progressed beyond pitches into early-stage deals.

Use Capital IQ or Internet research to generate potential buyers or investors, and use the company-provided pitch materials to come up with your projections for the potential stumbling blocks in the transaction.

For your investment recommendation, imagine that each deal is a potential LBO, and build a quick, simple model to determine the rough numbers, such as the IRR in the baseline and downside cases.

For the risk factors, reverse each model assumption (such as the company’s revenue growth and margins) and explain why your numbers might be wrong.

If you’re in the second or third categories above – you need to show evidence of managing/closing deals or evidence of working on IB-style deals – you should still follow these steps.

But you need to highlight your unique contributions to each deal, such as a mistake you found, a suggestion you made that helped move the financing forward, or a buyer you thought of that ended up making an offer for the seller.

If you’re coming in with non-IB experience, such as internal consulting , still use the same framework but point out how each project you worked on was like a deal.

You had to win buy-in from different parties, get information from groups at the company, and justify your proposals by pointing to the numbers and qualitative factors and addressing the risk factors.

Firm Knowledge

Understanding the firm’s investment strategies, portfolio, and exits is very important at smaller firms and in off-cycle processes, and less important in on-cycle interviews at mega-funds.

If you have Capital IQ access, use it to look up the firm.

If not, go to the firm’s website and do extensive Google searches to find the information.

Finding this information should not be difficult, but the tricky point is that firms won’t necessarily evaluate your knowledge by directly asking about it.

Instead, if they give you a take-home case study, they might judge your responses based on how well your investment thesis lines up with theirs.

For example, if the firm makes offline retailers more efficient via cost cuts and store divestitures, you should not present an investment thesis based on overseas expansion or roll-ups of smaller stores.

If they ask for an investor’s view of one of your deals, they might judge your answer based on your ability to frame the deal from their point of view.

For example, if the firm completes roll-ups in fragmented industries, you should not look at a standard M&A deal you worked on and say that you’d acquire the company because the IRR is between XX% and YY% in all scenarios.

Instead, you should point out that with several roll-ups, the IRR would be between XX% and YY%, and even in a downside case without these roll-ups, the IRR would still be at least ZZ%, so you’d pursue the deal.

Market/Industry

In theory, private equity firms should care about your ability to find promising markets or industries.

In practice, open-ended questions such as “Which industry would you invest in?” are unlikely to come up in traditional PE interviews.

If they do come up, they’ll be in response to your deal discussions, and the interviewer will ask you to explain the upsides and downsides of your company’s industry.

These questions are more likely in growth equity and venture capital interviews, so you shouldn’t spend too much time on them if your goal is traditional PE (for more on these fields, see our coverage of venture capital interview questions and the venture capital case study ).

And even if you are interviewing for growth equity or VC roles, you can save time by linking your industry recommendations to your deal experience.

Case Studies and Modeling Tests

You will almost always have to complete a case study or modeling test in PE interviews, but the types of tests span a wide range.

Here are the six most common ones, ranked by rough frequency:

Type #1: “Mental” Paper LBO

This one is closer to an extended technical question than a traditional case study.

To answer these questions, you need to know how to approximate IRR, and you need practice doing the mental math.

The interviewer might ask something like, “A PE firm acquires a $150 EBITDA company for a 10x multiple using 60% Debt. The company’s EBITDA increases to $200 by Year 3, $225 by Year 4, and $250 by Year 5, and it pays off all its Debt by Year 3.

The PE firm sells its stake evenly over Years 3 – 5 at a 10x EBITDA multiple. What’s the approximate IRR?”

Here, the Purchase Enterprise Value is $1.5 billion, and the PE firm contributes 40% * $1.5 billion = $600 million of Investor Equity.

The “average” amount of proceeds is $225 * 10 = $2,250, and the “average” Exit Year is Year 4 (no need to do the full math – think about the numbers – and all the Debt is gone).

So, the PE firm earns $2,250 / $600 = 3.75x over 4 years. Earning 3x in 3 years is a ~45% IRR, so we’d expect the IRR of a 3.75x multiple in 4 years to be a bit less than that.

To approximate a 4x scenario, we could take 300%, divide by 4 years, and multiply by ~55% to account for compounding.

That’s ~41%, and the actual IRR should be a bit lower because it’s a 3.75x multiple rather than a 4.00x multiple.

In Excel, the IRR is just under 40%.

Type #2: Written Paper LBO

The idea is similar, but the numbers are more involved because you can write them down, and you might have 30 minutes to come up with an answer.

You can get a full example of a paper LBO test, including the detailed solutions, here .

You can also check out our simple LBO model tutorial to understand the ropes.

With these case studies, you need to start with the end in mind (i.e., what multiple do you need for an IRR of XX%) and round heavily so you can do the math.

Type #3: 1-3-Hour On-Site or Emailed LBO Model

These case studies are the most common in on-cycle interviews because PE firms want to finish quickly.

And the best way to do that is to give all the candidates the same partially-completed template and ask them to finish it.

You may have to build the model from scratch, but it’s not that likely because doing so defeats the purpose of this test: efficiency.

You’ll almost always receive several pages of instructions and an Excel file, and you’ll have to answer a few questions at the end.

The complexity varies; if it’s a 1-hour test, you probably won’t even build a full 3-statement model .

They might also ask you to use a cash-free debt-free basis or a working capital adjustment to tweak the Sources & Uses slightly.

If it is a 3-hour test, a 3-statement model is more likely (the other parts of the model will be simpler in this case).

Here’s a free example of a timed LBO modeling test ; we have many other examples in the IB Interview Guide and Core Financial Modeling course .

IB Interview Guide

Land investment banking offers with 578+ pages of detailed tutorials, templates and sample answers, quizzes, and 17 Excel-based case studies.

Type #4: Take-Home LBO Model and Presentation

These case studies are open-ended, and in most cases, you will not get a template to complete.

The most common prompts are:

• Build a model and make an investment recommendation for Portfolio Company X, Former Portfolio Company Y, or Potential Portfolio Company Z.
• Pick any company you’re interested in, build a model, and make an investment recommendation.

With these case studies, you must fit your recommendation to the firm’s strategy rather than building a needlessly complex model.

You might have 3-7 days to complete this type of case study and present your findings.

You might be tempted to use that time to build a complex LBO model, but that’s a mistake for three reasons:

• The smaller firms that give open-ended case studies tend not to use that much financial engineering.
• No one will have time to review or appreciate your work.
• Your time would be better spent on industry research and coming up with a sold investment thesis, risk factors, and mitigants.

If you want an example of an open-ended exam like this, see our private equity case study article and follow the video walkthrough or article text.

Your model could be shorter, and your presentation could certainly be shorter, but this is a good example of what to target if you have more time/resources.

Type #5: 3-Statement/Growth Equity Model

At operationally-focused PE firms, growth equity firms, and PE firms in emerging markets such as Brazil , 3-statement projection modeling tests are more common.

The Atlassian case study is a good example of this one, but I would change a few parts of it (we ignored Equity Value vs. Enterprise Value for simplicity, but that was a poor decision).

Also, you’ll never have to answer as many detailed questions as we did in that example.

If you think about it, a 3-statement model is just an LBO model without debt repayment – and the returns are based on multiple expansion, EBITDA growth, and cash generation rather than debt paydown .

You can easily practice these case studies by picking companies you’re interested in, downloading their statements, projecting them, and calculating the IRR and multiples.

Type #6: Consulting-Style Case Study

Finally, at some operationally-focused PE firms, you could also get management consulting-style case studies, where the goal is to advise a company on an expansion strategy, a cost-cutting initiative, or pricing for a new product.

We do not teach this type of case study, so check out consulting-related sites for examples and exercises.

And keep in mind that this one is only relevant at certain types of firms; you’re highly unlikely to receive a consulting-style case study in standard PE interviews.

A Final Word On Case Studies

I’ve devoted a lot of space to case studies, but they are not as important as you might think.

In on-cycle processes, they tend to be a “check the checkbox” item: Interviewers use them to verify that you can model, but you won’t stand out by using fancy Excel tricks.

Arguably, they matter more in off-cycle interviews since you can present unique ideas more easily and demonstrate your communication skills in the process .

What NOT to Worry About In PE Interviews

The topics above may seem overwhelming, so it’s worth pointing out what you do not need to know for interviews.

First, skip super-complex models.

As a specific example, the LBO models on Macabacus are overkill; they’re way too complicated for interviews or even the job itself.

You should aim for Excel files with 100-300 rows, not 1,000+ rows, and skip points like circular references unless they specifically ask for them (for more, see our tutorial on how to remove circular references in Excel )

Next, skip brain teasers; if an interviewer asks them, you should drop discussions with the firm.

Finally, you don’t need to know about the history of the private equity industry or much about PE fund economics beyond the basics.

Your time is better spent learning about a firm’s specific strategy and portfolio.

PE Interview X-Factor(s)

Besides the topics above, competitive tension can make a huge difference in interviews.

If you tell Firm X that you’ve already received an offer from Firm Y, Firm X will immediately become far more likely to give you an offer as well.

Even at the networking stage, competitive tension helps because you always want to tell recruiters that you’re also speaking with Similar Firms A, B, and C.

Also, leverage your group alumni and the 2 nd and 3 rd -year Analysts.

You can read endless articles online about interview prep, but nothing beats real-life conversations with others who have been through the process.

These alumni and older Analysts will also have example case studies they completed, and they can explain how to spin your deal experience effectively.

PE Interview Preparation

The #1 mistake in PE interviews is to focus excessively on modeling tests and technical questions and neglect your deal discussions.

You can avoid this, or at least resist the temptation, by turning your deals into case studies.

If you follow my advice to create simplified LBO models for your deals, you can combine the two topics and get modeling practice while you’re preparing your “investor’s views.”

If you’re working full-time in banking, use your downtime in between tasks to do this , outline your story , and review technical questions.

If you only have 10-15-minute intervals of downtime, break case studies into smaller chunks and aim to finish a specific part in each period.

Finally, start preparing before your full-time job begins .

You’ll have far more time before you start working, and you should use that time to tip the odds in your favor.

The Ugly Truth About PE Interviews

You can read articles like this one, memorize PE interview guides, and get help from dozens of bank/group alumni, but much of the process is still outside of your control.

For example, if you’re in a group like ECM or DCM , it will be tough to win on-cycle interviews at large firms and convert them into offers no matter what you do.

If the mega-funds decide to kick off recruiting one day after you start your full-time job in August, and you’re not prepared, too bad.

If you went to a non-target school and earned a 3.5 GPA, you’ll be at a disadvantage next to candidates from Princeton with 3.9 GPAs no matter what you do.

So, start early and prepare as much as you can… but if you don’t receive an offer, don’t assume it’s because you made a major mistake.

So You Get An Offer: What Next?

If you do receive an offer, you could accept it on the spot, or, if you’re speaking with other firms, you could shop it around and use it to win offers elsewhere.

If you’re not in active discussions with other firms, you’re crazy if you do not accept the offer right away.

If You Get No Offer: What Next?

If you don’t get an offer, follow up with your interviewers, ask for feedback, and ask for referrals to other firms that might be hiring.

If you did reasonably well but came up short in a few areas, you could easily get referrals elsewhere .

If you did not receive an offer because of something that you cannot fix, such as your undergraduate GPA or your previous work experience, you might have to consider other options, such as a Master’s, MBA, or another job first.

But if it was something fixable, you could take another pass at recruiting or keep networking with smaller firms.

To PE Or Not to PE?

That is the question.

And the answer is that if you have the right background, you understand the process, and you start preparing far in advance, you can get into the industry and win a private equity career .

And if not, there are other options, even if you’re an older candidate .

You may not reach the promised land, but at least you can blame it on someone else.

Additional Reading

You might be interested in:

• The Search Fund Internship: Perfect Pathway into Investment Banking and Private Equity Roles?
• Private Equity Analyst Roles: The Best Way to Skip Investment Banking?
• On-Cycle Private Equity Recruiting : Will PE Firms Start Recruiting 10-Year-Old Children Soon?

Or, learn more about Breaking Into Wall Street here.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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49 thoughts on “ Private Equity Interviews 101: How to Win Offers ”

Brian, What about personality tests? What is their importance in the overall hiring process eg if you get them as the last stage?

They’re not that important, and even if you do get them, you can’t really “prepare” in any reasonable way (barring a brain transplant to replace your personality and make it more suitable for the firm). It’s also highly unusual to get one in the final stage – a firm doing that is probably just paranoid that you are secretly a serial killer and they want to rule out that possibility.

Hey- for the Fromageries Bel case study, can’t quite make sense of the Tier 4 management incentive returns, what’s the calculation for each tier? Would think it’s Tier 2 less tier 1 * tier 1 marginal profit

Tier 4 is based on a percentage of all profits *above* a 2.5x equity multiple. Each tier below it is based on a percentage of profits between specific multiples, which correspond to specific EUR proceeds amounts.

I have an accounting background (CPA & several years removed from school) and a small amount of finance experience through internships. I’m interviewing for a PE analyst position and managed to get through the first round of interviews. The firm itself doesnt just hire guys with a few years of banking, their team is very diverse with some backgrounds similar to mine.

The first round interview was a mix of technical questions plus a lot about myself and my experience. No behavioral questions. The first round was with an associate for 30 minutes, the second round is an hour with a partner. I managed to answer a lot of the questions about LBO models and what types of companies are good LBO candidates. Thanks to your website for that.

Any advice for a second round interview for a guy like me who doesnt have deal making experience or much experience in finance? Will the subsequent interviews after the first round be more technical-based questions? Or do they lean more on technical questions in round 1 to weed out candidates?

They will usually become more fit-based if they’ve already asked a lot of technical questions in earlier rounds. I would focus on your story and answers to the Why PE / Why This Firm / Are you sure you want to switch?-type questions.

Is it likely too difficult to access the on-cycle process from the CLT office of an In-Between-a-Bank that it would make more sense to focus one’s energy on the MM/LMM? Is the new era of Zoom making geography/distance less of a factor or is the perceived prestige of NY still an obstacle?

Location is somewhat less of a factor now, but it still matters, and working from home will not continue indefinitely into the future. It will be very difficult to participate in on-cycle recruiting at the mega-funds if you’re working in Charlotte at Wells Fargo if that’s your question, but plenty of MM funds are realistic.

What are some of the larger funds that you would consider realistic?

There are dozens of funds out there (it’s not like bulge bracket banks or mega-fund PE firms where there’s only a defined set of 5-10), so I can’t really give you a specific answer. My recommendation would be to look up people who worked at WF on LinkedIn and see the types of funds they are now working at.

I remember I saw a video of yours (might have been YouTube) where you explained the PE process. You talked about do pe firms really add value and then you went over how when a pe firm buys a company, they do a little “trick” where they create a shell company to acquire the target so the debt isn’t on the pe firms books. I’ve been looking all over for this video. Do you know which video I’m referring to?

Yes, that is no longer in video form. It’s still in the written LBO guide but the video from the old course was removed because it was way too long and boring for a video and was better explained in text.

Hi Brian, can you elaborate more on ‘Understanding the firm’s investment strategies, portfolio, and exits’ when you talk about smaller firm and off-cycle processes, simliar point came up under *Type 5*: you must fit your recommendation to the firm’s strategy rather than building a needlessly complex model. What exactly should I pay attention on? I felt funds I checked their investment strategy descirption are pretty broad, and they invest in various type of deals, say even in one industry, they do different purchase range. Also, when talking about growth equity, you mentioned you can practice case by picking companies you’re interested in, downloading their statements, projecting them. What if they are not public companies, how can I get those information? Are you recommending only those companies with 20F available? Or can you just elaborate more on how can I follow your instruction? Thanks

All you can do is go off their website and possibly a Capital IQ description if you have access. See if they focus on growth, leverage for mature companies, operational improvements, or add-on acquisitions and pick something that fits one of those.

You can pick public companies for growth equity or find a public company that is similar to a private one the firm has.

Hey Brian! I have an interview with a family office for a private equity analyst position. The firm is small and not much about it online. I haven’t had much time to prepare as it was not an interview I was expecting. What would you say the most important elements to focus on are for the interview considering the time constraint? I am an undergrad, third year, second internship. (first internship was for a large construction/developer as project coordinator, not finance based)

Focus on your story, the firm’s portfolio companies and strategies, and a few investment ideas you have for specific sectors. Technical questions are fine, but you probably won’t have much time to prepare at the last minute.

How would PE interviews / Technical questions look like for straight out of undergrad PE role look like

e.g Blackstone internships, Goldman Merchant Banking internships etc

Similar to IB ones, with a focus on LBOs?

Largely the same, but less emphasis on deal experience and deal-related questions at the undergraduate level. They may ask slightly more questions on LBOs, but at the undergrad level, they assume you know very little, so questions will span a wide range of topics.

Have you written or seen similar articles on PE operating partner interviews?

No, sorry. There’s hardly any information on that level of interview online because you can’t really make an interview guide or other product to prepare for it, and most people at that level would need 1-on-1 coaching more than a guide. My guess is that they will focus almost exclusively on your past experience turning around and growing businesses and assess how well you can do it for their portfolio companies. They’re not going to give you LBO modeling tests or case studies.

“Next, skip brain teasers; if an interviewer asks them, you should drop discussions with the firm”

Could you please elaborate on this? Almost every IB interview includes brain teasers so I am wondering why a PE interview shouldn’t?

Brain teasers are not that common in IB interviews in most regions unless you count any math/accounting/finance question as a brain teaser. They are far more common in S&T, quant fund, and prop trading interviews.

The point of this statement is that it’s OK if an occasional brain teaser comes up, but if the interviewer asks you brain teasers for 30 minutes, which have exactly 0% correlation to the real work in PE, you should leave because it’s a sign that the people working at the firm are idiots who don’t know how to conduct proper interviews or test candidates.

This is helpful. I find myself at a fix, I do not think I have had the right exposure, although in a BB I support teams with standard materials in a particular industry group in M&A. However I have interviews with a top global PE next month. Any guidance on how should I prepare for it ?

Thanks in advance

Follow everything in this article… practice spinning/discussing your deals… practice LBO questions and simple case studies.

Brian – thank you for your concise and candid remarks. do you have any insights or advice for someone with 5yrs of BB ECM & DCM experience now at a top full-time MBA program looking to break in?

It’s going to be very difficult if you just have capital markets experience and you’re already in business school. You should probably move to an M&A or strong industry team at a large bank (BB or EB) after business school and then go into private equity from there. It’s tough, but still easier than trying to move into PE directly out of an MBA program with only capital markets experience.

My next interview will highly likely involve a statement/growth equity modeling case. I tried to find the Atlassian Case interview but i am unable to open the link.

Would it be possible to share an example case or more information on that topic?

Many thanks,

The Atlassian case study is all we have. I don’t know why you can’t open the files, but I just tried and they seemed to work. Maybe try again or use a different browser.

Hi M&I team,

I have an opportunity to interview for an Analyst level opening at a boutique PE fund. This is a shop that has just started operations so I am directly communicating with the Partner. I doubt they have any structured recruitment process at this stage of their existence. He asked me to send some written work (memos and spreadsheets) on any public listed co that demonstrates my understanding of investing (basic balance sheet analysis, ratio analysis, valuation multiples).

So I am just wondering what to do? Should I work on projections and prepare a DCF model or do something simpler? I’d really appreciate your guidance on this.

Thanks again for the amazing work you’ll have been doing!

Yes, just create simple projections, a simple valuation/DCF, and maybe a simple LBO model since it is a PE fund that intends to buy and sell companies.

Could you provide some advice for preparing interviews for principal investing role ?

Thank you in advance Laura

We don’t really focus on that, but the articles on private equity and funds of funds on this site might be helpful.

Just wanted to say thank you! After reading everything on this site including all the CV and interview material I have managed to transition from a second year engineering undergrad with no prior experience/spring weeks/insight days, into an intern at Aviva Investors (UK buy side) within the space of one year.

The information you have posted is invaluable and “breaking in” is definitely doable with the right mindset and appetite for rejections!

Thanks again.

Thanks! Congrats on your internship offer.

Hi Brian/Nicole – Im an Economics student from the UK in 3rd year out of a 4 year course at a semi-target college, with 2 finance internships done up until now(not FO). I plan on doing a Msc Finance when I finish and eventually break into IB or Sales/Trading (I know I still haven’t decided which one I really want more). Through a family friend I have an offer to do a short internship this summer in NY in a post-trade regulatory commission. As this isn’t actually sitting at a trading desk experience, or anything related to IB should I decide to go down that road, would this add genuine value to my CV ? How are internships in regulatory commissions looked at for students looking to break into sales/trading? Surely even having any NY Finance experience on the CV will add more substance over here in London when going for internships compared to the majority of UK students who don’t? Appreciate any advice on this matter, Thanks!

I don’t think it would help much because you already have 2 non-FO internships, and a regulatory internship would be yet another non-FO internship. If it’s your best option, you can take it, but you would be better off getting something closer to a real front-office role.

Hey Brian. I am graduating after this semester going into Management consulting (Deliote, AT Kearny, Accenture)but I’m hoping to make a switch into either IB or PE after a couple years. I have one search fund internship which was enough to get me a few 1st and second round ib/pe FT interviews but no offers.My plan is to get into the best online MSF program I can and switch into Finance once I’m done. Do you think, given how close I was to getting in my 1st try, a high GPA from a reputable MSF and good experience in consulting will be enough or should I try to somehow get an IB internship before I apply?

I think you will probably need another internship just before the MSF starts or while it is in progress, not necessarily in IB, but something closer to it. Otherwise you’ll get a lot of questions about why you went from the search fund to consulting.

Thanks. As far as my story is concerned, is it better to do another finance internship before consulting so it’s search fund->ib->consulting->MSF (or MBA not sure)? I only ask because I may be able to get on some m&a projects with the consulting firm and my story could be when exposed to those deals, I realized how big my passion for finance was and that’s when I decided to get my MSF and switch to IB.

No, I think that would make less sense because then you would have to explain why you went from IB to consulting… and are now trying to go back to IB. Saying that you got exposed to M&A deals during the consulting experience would be a better story (and you would still ideally pair it with a transaction-related internship before/during the MSF).

Got it, thanks!

Probably missing something here, but for the first example, where does the 300% and 55% come from?

300% = 4x multiple. If compounding did not exist, we could just say 300% / 4 = 75% annual return. Because of compounding, however, the actual return does not need to be 75% per year in order for us to earn 300% by the end of 4 years. Instead, it can be a fair amount less than that, and we’ll still end up with 300% at the end.

To estimate the impact of compounding, you can multiply this 300% / 4 figure by a “compounding factor,” which varies based on the multiple and time period, but which is around 55% for a 4x return over a standard holding period.

Do you mind explaining how you can estimate a “compounding factor” such as with the 55% here?

There’s no easy-to-calculate-using-mental-math way to get this for all scenarios, but you can memorize quick rules of thumb (based on actual numbers and looking at the ratios) for 3 and 5-year periods and extrapolate from there. I don’t really think it’s worth doing that in-depth, though, because you just have to be roughly correct with these answers.

Do you think you will do a hedge fund interview guide similar to the one you have here?

Potentially, yes, but it’s much harder to give general guidelines for HF interviews because they’re completely dependent on your investment pitches. Also, interest in HFs has declined over the years (we no longer receive as many questions about them).

On that mental paper LBO question, how is the company able to pay off 900 of debt by year 3? It sounds like proceeds from the sale will have to be used in order to fully pay off the debt because EBITDA alone only adds up to 525, and that’s assuming there’s no interest.

Favorable working capital… NOLs… asset sales… the Konami code or other cheat codes. The point is not the numbers but the thought process.

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Ace Your Private Equity Interviews

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How to create a clear private equity investment thesis

Ben Harrison

President, Industries

Table of contents

Detail macroeconomic factors, detail microeconomic factors, establish and describe the trade setup, summarize your investment thesis, examples of investment thesis summaries, what to do with your new investment thesis.

For every dozen private equity deals, only one or two generate significant returns to their investors, according to Investopedia. The biggest reason why deals either fail to deliver or fall through altogether : Firms often neglect to deal with red flags early on in an agreement. To help determine whether a deal will be profitable, private equity firms must first establish a clear, concise investment thesis.

A private equity investment thesis is an evidence-based case built in favor of a particular investment opportunity. It opens with a two- to three-sentence argument showing how the potential deal supports a general partner’s fund investment strategy, then provides details that support that conclusion.

An investment thesis is required for all buy-side dealmakers. Beyond fulfilling a requirement, the detailed proposition serves to:

• Crystallize the group’s tactical plan, putting strategy into action
• Inform intermediaries, investors, and fellow partners what’s at stake if the firm does — or doesn’t — invest
• Answer the variety of questions that arise throughout a typical transaction

Follow these next steps to create a winning private capital markets investment thesis and identify the best opportunities for your firm.

To create a successful investment thesis, firms must first answer global and niche-agnostic economic questions. This will help set the stage for the acquisition target to shine against a macro backdrop.

Start by listing any relevant current headlines , political and social developments, and even consumer trends that are affecting investments across the board. These news stories will remind investors what they and your potential portfolio companies (portcos) are facing today.

For example, you might list the U.S. Securities and Exchange Commission’s most recent proposals, e-commerce adoption, or European political volatility as factors that are affecting investments. Detail the way these factors are helping or hindering the private capital markets in general.

You should also list headlines that affect the acquisition target’s industry, sector, and subsector, and explain whether these developments favor growth for your private company. For example, if a general partner’s acquisition target was in the durable goods manufacturing space, the principal would include the U.S. freight transportation services index (TSI) as a macroeconomic factor in his investment thesis, and would describe how its recovery predicts smoother supply chains to ease investor worries. Similarly, you can explain in your investment thesis how your portco will be positioned competitively among its sector rivals.

Risks aren’t traditionally included in investment theses, but you can include them if they strengthen your macroeconomic analysis . You may want to include factors such as whether global or national conditions oppose the potential portco’s growth or the investment’s performance. You can also describe how your acquisition target would sidestep or weather those pitfalls.

Bain & Co. experts recently declared that macroeconomic instability is dealmaking’s number-one enemy . Position your investment thesis to shine by having a good handle on macroeconomic factors.

The macroeconomic information you gather can help you drill down into more granular information about an investment opportunity . Narrow your proposed direction by including microeconomic details about company-level questions to your investment thesis. Try to answer questions such as:

• Why do you believe the target’s founder or owner will lead the company to growth? Describe ways the current CEO demonstrates innovative, creative problem-solving and strong leadership.
• What do the company’s financial statements reveal about the business’s record-keeping? Are the reports straightforward and easy to read? Before due diligence, investigate the business’s financials to uncover thesis-supporting insights.
• What do the company’s financial statements reveal about the viability of the business? Are there clues as to how leadership has handled finances at key inflection points? How much variance does each metric — such as return on equity, profit, return on assets, and earnings per share — exhibit?
• How has the company navigated cash flow surprises in the past? Surprises can include headwinds and windfalls, and an event like a spike in the company’s quick ratio must be handled with as much finesse as a cash shortage. What proof is there that the business keeps growing sustainably amid short-term volatility ?
• How has the company used seed money? James W. Frick, former Vice President of Public Relations at the University of Notre Dame, famously said, “Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” When you look at previous injections , don’t just analyze the company’s capital efficiency. Draw conclusions about what the team prioritizes, such as growth over client retention.
• What opportunities are there for better cost management? Are there areas where the business is spinning its wheels and expending resources without gaining effective traction? Could certain actions — such as managing talent differently, renegotiating vendor agreement terms, or terminating a failed market expansion — efficiently address these areas ?
• What’s the company’s reputation like? Consider hiring a market research firm to perform an exploratory branding assessment. Take it to the next level by gathering observations from clients, employees, and vendors. If any quotes prove highly relevant, include them in your investment thesis.
• In what ways are competitors excelling or lagging? The ideal investment is in a market where rivals are failing to innovate. Does your target acquisition have what it takes to exploit market conditions faster and better than competitors?
• What could go wrong? The best investment theses don’t deny risks but instead address them at an early stage. As you list potential pitfalls, identify ways the private equity firm’s management team can dodge or defuse these hazards .

Consider the professionals at Morgan Stanley , who use three questions to formulate the microeconomic portions of their investment theses.

• Agility and defensibility — Is the company a disruptor or is it insulated from disruptive change?
• Financial viability of the business — Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital intensity, and low leverage?
• ESG (environmental, social, and governmental) and the responsibility to do no harm — Are there environmental or social externalities not borne by the company, or are there governance and accounting risks that may alter the investment thesis?

Once you’ve compiled a substantial body of information to use in your investment thesis, sort the details by order of importance. Each deal’s details should be arranged differently since each investment is unique.

The final component of a good investment thesis answers the question, “So what?” It offers bold implications of the micro- and macroanalysis you just performed, and reveals what your next steps should be .

To describe the proposed trade, explain how the micro and macro factors will work together to increase carry for partners and returns for limited partners. Propound an entry point or “ setup price ,” and describe how you arrived at your proposed acquisition’s target price. Industries — and different private equity firms within those spaces — vary in how they calculate reasonable prices.

Keep in mind that the industry standard expects your firm to find the product of estimated earnings and your expected multiple. For example:

• Estimated earnings × EV/EBITDA = target price
• Estimated earnings × FCF/market capital = target price
• Estimated earnings × Price-to-earnings (P/E) ratio = target price

In your investment thesis, explain why your firm uses a particular multiple and how it came to estimate future earnings . Be sure to include these details as a footnote or sidenote for more curious readers.

Once you’ve proposed a purchase price, describe why the buy side should value the business at that entry point. You may need to briefly repeat what you’ve stated in your micro- and macroeconomic research findings, but within the context of your financial investment.

You should also outline what will happen if you choose not to invest in a particular business. Will the current owners keep their stake, or will a rival scoop them up ? Will a competitor fumble the operational improvements or liquidate too early or late? Or will the competitor execute brilliantly, generate alpha, and solidify or even expand its limited partner pool?

Finally, you must weave in a capital plan to detail how your investors’ committed capital will improve company profits for either returns or reinvestments. The capital plan outlines some of the strategic moves and operational improvements you believe will generate short-term wins and future sustainable growth. It should include no more than three or four actions; for example, you could include initiatives like increasing dividends or paying down debt to put free cash flow to work.

To wrap up the investment thesis, discuss how the deal would work into and support the fund’s overall investment strategy. Detail ways your firm brings a competitive advantage to the deal. Have your partners demonstrated acumen with similar deals? List the reasons why you’re the company’s best bet for making above-market returns.

Now that you’ve built a complete — but also quite complex — investment thesis, it’s time to develop a clear, effective presentation . General partners distill their investment theses into bite-size, portable overviews that are more memorable and digestible for their audiences. Concisely summarizing your thesis will:

• Help busy readers better understand your thesis. For skimmers and scanners who want to skip around your thesis, a synopsis gives them a starting and ending point.
• Steer future investments, further defining your role in your niche. If, for example, a particular investment thesis persuades limited partners and intermediaries to commit to an event-based investment, you may become a firm known for that type of strategy.
• Provide you with a successful deal that you can use as an example during events like employee training, marketing, and roadshows. Imagine one of your vice presidents attends a trade event and meets an esteemed limited partner who expresses interest in your firm’s most recent deal. A quick investment thesis summary is the perfect way to explain the deal and further the partner’s interest.
• Set up a memorial to look back on. As the investment’s time horizon approaches, your team should reflect on how the deal began and what twists and turns you and your portco navigated along the way. This exercise will help prepare your team for future scenarios and investment opportunities.

Authors David Harding and Sam Rovit highlighted a summary of Clear Channel’s merger-specific investment thesis. The media company had decided to expand into outdoor advertising sales and needed to build its case and present it to stakeholders. Note the three concrete benefits the company describes in detail:

Clear Channel’s expansion into outdoor advertising leverages the company’s core competencies in two ways: First, the local market sales force that is already in place to sell radio ads can now sell outdoor ads to many of the same buyers, and Clear Channel is uniquely positioned to sell both local and national advertisements . Second, much like the radio industry 20 years ago, the outdoor advertising industry is fragmented and undercapitalized. Clear Channel has the capital needed to ‘roll up’ a significant fraction of this industry, as well as the cash flow and management systems needed to reduce operating expenses across a consolidated business.

This summary explains that the acquiring executives planned to generate returns by:

• Using existing talent and preventing costs usually associated with successful deals
• Applying skills and processes from one sector to improve the newly added operation
• Combining assets or “ rolling up ” to share costs and benefits through a newly formed industry rather than fragmented sectors

Best of all, the summary uses a single paragraph to get the job done.

Here are a few examples from dealmakers in other private capital markets:

• Private equity — Read the overviews of investment theses from Arcspring , Sun Capital Partners , WestView Capital Partners , and Safanad , a team that clearly communicates its commitment to private equity with real estate incorporated.
• Real estate private equity (REPE) — CrowdStreet articulately summarizes how and why the firm invests, and it states its intentions by asset class and sector. The synopsis covers hospitality, industrials, health care, multifamily, office space, retail, self-storage, senior care, student housing, and life sciences.
• Impact investing — The FSIG and Creatella investment thesis summaries are clear and give a high-level flyover of the model deal’s macro- and microeconomics.
• Venture capital — Wavemaker Partners , Chloe Capital , and La Poste Ventures substitute corporate language with simpler and more digestible terms.

An investment thesis is more than a report: It’s the developing narrative of a successful deal. You’ll likely need to update your thesis and presentation more than once, and in a variety of ways, throughout the lifecycle of the investment.

Publish the investment thesis in your team’s internal deal management system, and assign permissions to those who refer to the plan often. Set up notifications so that you receive alerts whenever someone comments or edits the investment thesis. If your current deal management system doesn’t support this level of effective collaboration, contact DealCloud to request a demo today.

Remember: Successful deals start with successful investment theses. Don’t let investors wade into a transaction before taking the steps above to identify red flags and create an evidence-based plan that everyone can buy into.

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Hacking the Case Interview

If you have an upcoming private equity case interview and are feeling stressed, overwhelmed, or unsure of what to do, we have you covered.

Private equity case interviews are a common type of case given in consulting interviews in addition to market entry case interviews , growth strategy case interviews , M&A case interviews , pricing case interviews , operations case interviews , and marketing case interviews .

Fortunately, private equity case interviews are fairly straight forward. They are very predictable and all cases generally follow the same steps to solve.

In this comprehensive article we’ll cover:

• What is a private equity case interview?
• Why do consulting firms give private equity case interviews?
• How to solve a private equity case interview
• Private equity case interview framework
• Private equity case interview examples
• Private equity case interview vs. M&A case interview
• Recommended private equity case interview resources

If you’re looking for a step-by-step shortcut to learn case interviews quickly, enroll in our case interview course . These insider strategies from a former Bain interviewer helped 30,000+ land consulting offers while saving hundreds of hours of prep time.

What is a Private Equity Case Interview?

A private equity case interview situates you in a business situation where you are helping a private equity firm decide whether or not to acquire a company to add to their portfolio.

For those that are unfamiliar with what private equity is, private equity firms are investment management companies that specialize in making investments in privately held companies or in public companies that they plan to take private.

This type of investment is called private equity because it involves investments made in privately held companies in contrast to publicly traded companies, which have shares that can be traded on public stock exchanges. However, private equity firms can also buy out a public company and take that company private.

Private equity firms raise capital from investors, including pension funds, endowments, and high-net worth individuals.

These private equity firms then identify potential companies to acquire or invest in, performing a thorough due diligence to ensure that the investments they make are attractive and will generate a high return on investment for their investors.

In a private equity case interview, you will be conducting a due diligence on a company that has been identified as a potential acquisition target.

The value that private equity firms provide include:

• Providing capital to companies that need funding for growth and expansion
• Bringing expertise and resources to help improve operational efficiency
• Providing strategic guidance and advice for business strategy and market positioning
• Providing access to an extensive network of industry contacts, potential customers, suppliers, distributers, retailers, and other stakeholders
• Using financial engineering techniques to optimize capital structure, including restructuring debt, recapitalizing the company, or implementing tax-efficient strategies

Why do Consulting Firms Give Private Equity Case Interviews?

Consulting firms give private equity case interviews because they closely simulate what private equity work at the firm looks like. If candidates can do well on a private equity case interview, they’ll likely succeed doing private equity due diligences for actual clients.

Case interviews in general are a way for consulting firms to assess whether candidates have the skills and capabilities to succeed in consulting.

In just a 30 to 45-minute case interview, interviewers can assess a variety of different skills that are critical to management consulting. Skills assessed in a case interview include:

Logical and structured thinking : Consultants need to be organized and methodical in order to work efficiently.

• Can you structure complex problems in a clear, simple way?
• Can you take tremendous amounts of information and data and identify the most important points?
• Can you use logic and reason to make appropriate conclusions?

Analytical problem solving : Consultants work with a tremendous amount of data and information in order to develop recommendations to complex problems.

• Can you read and interpret data well?
• Can you perform math computations smoothly and accurately?
• Can you conduct the right analyses to draw the right conclusions?

Business acumen : A strong business instinct helps consultants make the right decisions and develop the right recommendations.

• Do you have a basic understanding of fundamental business concepts?
• Do your conclusions and recommendations make sense from a business perspective?

Communication skills : Consultants need strong communication skills to collaborate with teammates and clients effectively.

• Can you communicate in a clear, concise way?
• Are you articulate in what you are saying?

Personality and cultural fit : Consultants spend a lot of time working closely in small teams. Having a personality and attitude that fits with the team makes the whole team work better together.

• Are you coachable and easy to work with?
• Are you pleasant to be around?

Consulting firms typically charge anywhere from 20-50% higher rates for private equity work compared to other types of consulting work. Therefore, consulting firms are always trying to sell more private equity work and really value candidates that show the potential to do private equity diligences.

Showing competency during a private equity case interview will make you a highly attractive candidate.

How to Solve a Private Equity Case interview

Although the exact industry or company that you will do a due diligence on during a private equity case interview will vary, all private equity cases typically follow the same five steps.

Once you have done a few private equity cases, you’ll quickly notice this pattern and be able to take your learnings from your previous cases and apply them to future private equity case interviews.

1. Understand the goal of the acquisition

The first step of any private equity case interview is to understand what is the goal of the acquisition. Only once you understand the goal or objective can you start to evaluate whether the acquisition or investment makes sense.

There are a number of different reasons why a private equity firm may want to acquire or invest in a company:

• Potential for growth : Private equity firms may target companies that have strong growth potential, including the potential to expand into new markets, introduce new products or services, or for increasing market share in existing markets
• Operational improvement : Private equity firms often specialize in operational optimization and efficiency. They may target companies with underperforming operations or inefficient processes to implement changes to improve profitability and performance
• Strategic fit : Private equity firms may pursue investments that align with their overall investment thesis or strategic objectives. This includes investing in companies that complement their existing portfolio holdings or fill a gap in industry coverage
• Turnaround opportunities : Private equity firms may also specialize in turning around distressed companies that are facing significant financial challenges or difficulties. They may see an opportunity to acquire a distressed company at a heavily discounted price
• Market timing : Private equity firms may also opportunistically invest in companies based on market conditions, lower than average valuation multiples, or industry trends. They may see attractive opportunities during periods of economic downturns or industry consolidation

2. Create a framework

The next step to solving a private equity case interview is to create a framework to guide your due diligence.

A case interview framework is a tool that helps you structure and break down complex problems into smaller, simpler components. You can think of a framework as brainstorming different ideas and organizing them into different, neat categories.

Instead of answering the overall question of whether the acquisition should be made, a framework can break up this large question into a few smaller, more manageable ones:

• Is the market that the acquisition target in attractive?
• How does the company perform relative to its competitors?
• Does the private equity firm have the skills or expertise to improve or turn around this company?
• Are there synergies that can be realized from this acquisition with other companies in the private equity firm’s portfolio?
• What are the major risks of this investment?
• What is the expected return on investment?

As you can see, using a framework helps you break down an ambiguous and daunting due diligence task into several more manageable steps.

3. Develop a hypothesis

Once you have developed a great framework to help you solve the private equity case, the next step is to develop a case interview hypothesis .

Based on the limited information that you have, what is your preliminary hypothesis on whether the company should be acquired?

Hypotheses are used in case interviews, as well as in consulting, because they are a very efficient way to solve problems. A hypothesis helps you focus your attention on the issues that matter most in developing a recommendation.

Many candidates find it challenging and intimidating to develop an initial hypothesis with very limited information. However, don’t be discouraged from this.

Know that it is completely acceptable for your initial hypothesis to be wrong.

Remember, the goal of coming up with an initial hypothesis is to help guide your analysis and discussion towards the right direction. You can think of your hypothesis as a strawman that you will either build support for or reject.

Your hypothesis will help you decide on an area of your framework to tackle first.

4. Build support for a recommendation

Now that you have a hypothesis for your private equity case interview, it is time to start building support for it or rejecting it.

As with any other type of case interview, you’ll likely need to do both case math as well as have qualitative discussions with the interviewer to discover more information and uncover key insights.

It is important that throughout the case, you are keeping track of all of the new information presented to you. It will be especially important to keep track of the major insights or key takeaways from each question that the interviewer asks you.

Keeping track of the major insights or key takeaways will make it significantly easier to develop a final recommendation at the end of the private equity case interview.

5. Deliver a recommendation

The last step in a private equity case interview is to develop a recommendation and present it to the interviewer.

Developing an ultimate recommendation is difficult because it requires you to review all of the work that you have done so far in the case interview and synthesize and distill all of it into just the most important points or takeaways.

You’ll also likely need to exercise business judgment to determine whether you should recommend acquiring the company or passing on the investment opportunity.

It is completely acceptable to ask the interviewer for a few minutes of silence so that you can collect your thoughts and deliver your recommendation in a clear, concise, and confident way.

When delivering your recommendation, make sure that you start with your recommendation first. Then, present the reasons or evidence that supports your recommendation. Finally, end by discussing potential next steps that you would look into if you had more time.

You don’t want to start your recommendation by summarizing all of your work and then stating a recommendation at the very end of your presentation.

This makes your recommendation excessively long and potentially unclear and confusing because the interviewer won’t know which way you are leaning towards until the very end.

Private Equity Case Interview Framework

The framework that you develop for your private equity case interview is the most important step of solving a private equity case interview.

Having a comprehensive and robust framework will make solving any private equity case interview easier. On the other hand, having an incomplete and poorly thought out framework will make solving the case significantly more challenging.

While you should not resort to purely memorizing frameworks for case interviews, there is a single framework that we recommend all candidates become familiar with. Many of the components of this private equity case interview framework can be applied to nearly any private equity case interview.

The major components of a private equity framework could include: market attractiveness, company attractiveness, private equity firm capabilities, synergies, financial implications, and risks.

• Market attractiveness : What is the market size of the market that the acquisition target is in? What is the growth rate of that market? How competitive is the market?
• Company attractiveness : What is the financial performance of the acquisition target? What are their key strengths or competitive advantages? What are their weaknesses?
• Private equity firm capabilities : Does the private equity firm have expertise in the industry or market that the acquisition target is in? Does the private equity firm have the capabilities or resources to improve the company’s performance?
• Synergies : Are there potential revenue synergies that can be realized with other companies in the private equity firm’s portfolio? Are there potential cost synergies that can be realized?
• Financial implications : Is the acquisition price fair? What is the potential return on investment? How long will it take the private equity firm to recoup their initial investment?
• Risks : What are the major risks of this investment? Can these risks be mitigated? What is the likelihood of these risks materializing?

An outstanding private equity case interview framework should include at least a few of these components, if not all of them.

However, make sure that you are customizing your private equity case interview framework based on the specific pieces of information and nuances of the case that you receive.

Private Equity Case Interview Examples

Below, we’ve provided examples of several different types of private equity case interviews you could see on interview day.

You can find more case interview examples in our articles on case interview examples and practice and MBA casebooks .

Private Equity Case Interview Example #1 : A private equity firm is interested in acquiring a technology startup with innovative products and a strong customer base. The firm sees significant growth potential in expanding the company's offerings to new markets and leveraging its technology to capture market share. Should they make this acquisition?

Private Equity Case Interview Example #2 : A private equity firm is considering acquiring a manufacturing company with inefficient operations and high production costs. The firm believes it can implement operational improvements, streamline processes, and reduce costs to enhance profitability and competitiveness. Should they acquire this manufacturing company?

Private Equity Case Interview Example #3 : A private equity firm that specializes in the healthcare sector is evaluating the acquisition of a pharmaceutical company with a promising drug pipeline. The firm's industry expertise and network could help accelerate the development and commercialization of the company's products. Should they make this acquisition?

Private Equity Case Interview Example #4 : A private equity firm wants to expand its presence in the consumer goods industry and is looking to acquire a well-established retail brand with a loyal customer base. The acquisition would complement the firm's existing portfolio and provide synergies in distribution, marketing, and brand positioning. Should they acquire this retail brand?

Private Equity Case Interview Example #5 : A private equity firm has identified a target company with substantial real estate assets and a strong cash flow from its core business. Should they make this acquisition?

Private Equity Case Interview Example #6 : A private equity firm that specializes in distressed investing is interested in acquiring a struggling automotive supplier facing liquidity challenges. The firm sees an opportunity to stabilize the business, renegotiate contracts, and implement cost-saving measures to return the company to profitability. What price should they bid for this potential acquisition?

Private Equity Case Interview Example #7 : A private equity firm has recognized a favorable market opportunity in the renewable energy sector and is considering the acquisition of a solar power company with a competitive cost structure and strong growth prospects. The firm aims to capitalize on increasing demand for clean energy solutions and government incentives. What is the most the private equity firm should bid on this solar company?

Private Equity Case Interview Example #8 : A private equity firm is evaluating the acquisition of a software company with a differentiated product offering and a growing customer base. The firm plans to invest in scaling the business and increasing market penetration, with the ultimate goal of exiting through a strategic sale or IPO to realize significant returns for its investors. How much should the private equity firm acquire this software company for?

Private Equity Case Interview vs. M&A Case Interview

Although private equity case interviews and M&A case interviews share many similarities, specifically that both are case interviews that involve deciding on whether to make an acquisition, there are some notable differences.

1. Long-term vs. short-term perspective

Private equity case interviews typically have a longer-term investment horizon since private equity firms may hold onto an investment for 5 to 10 or more years before selling. They are not heavily concerned with exactly how well the investment will perform in the first few years because they have a longer time horizon.

In contrast, for M&A case interviews, there is generally an expectation that a merger or acquisition will provide immediate tangible benefits to the company and shareholders.

2. Reasons for the acquisition

For private equity case interviews, candidates are often asked to develop an investment thesis for a potential acquisition. They will need to articulate why the target company represents an attractive investment opportunity and how the private equity firm can create value from the investment.

This may include identifying growth drivers, operational improvement opportunities, and synergies that can be realized with the existing portfolio.

In contrast, for M&A case interviews, candidates mainly focus on understanding the rationale behind a potential acquisition, including strategic fit, synergies, and market dynamics.

3. Different risk factors

In both private equity and M&A case interviews, candidates will need to give thought behind the potential risks of the acquisition. However, the major risks for a private equity firm making an acquisition vs. a company making an acquisition differ slightly.

For private equity acquisitions, major risks include: market risks, competitive threats, and execution risks. In contrast, for a merger or acquisition, major risks include company integration risks, legal risks, and regulatory compliance.

4. Exit strategies

Private equity case interviews often emphasize the importance of exit strategies since private equity firms typically aim to realize returns for their investors within a specific timeframe.

Therefore, for private equity case interviews, candidates may be asked to evaluate potential exit options, such as strategic sales, IPOs, and secondary buyouts. They may be asked to assess the timing and feasibility of each option.

For M&A case interviews, candidates may need to consider potential exit scenarios, such as divestiture or spin-offs, but the focus may be less on maximizing financial returns and more on strategic objectives.

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Faculty & Research

Private Equity in Action: Case Studies from Developed and Emerging Markets

Private Equity in Action takes you on a tour of the private equity investment world through a series of case studies written by INSEAD faculty and taught at the world's leading business schools. The book is an ideal complement to Mastering Private Equity and allows readers to apply core concepts to investment targets and portfolio companies in real-life settings. The 19 cases illustrate the managerial challenges and risk-reward dynamics common to private equity investment.

The case studies in this book cover the full spectrum of private equity strategies, including:

Carve-outs in the US semiconductor industry (LBO) Venture investing in the Indian wine industry (VC) Investing in SMEs in the Middle East Turnaround situations in both emerging and developed markets. Written with leading private equity firms and their advisors and rigorously tested in INSEAD's MBA, EMBA and executive education programmes, each case makes for a compelling read.

As one of the world's leading graduate business schools, INSEAD offers a global educational experience. The cases in this volume leverage its international reach, network and connections, particularly in emerging markets.

Claudia Zeisberger

Senior Affiliate Professor of Entrepreneurship and Family Enterprise

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Healthcare Private Equity: A Review of Key Case Studies and Recommendations for Effective, Equitable Private Investment in Healthcare

Lucy W Ma , Cyrus Buckman , Shreya A Shah , Stanford University School of Medicine and Graduate School of Business; and Kevin A Schulman , Stanford University School of Medicine and Graduate School of Business, and Clinical Excellence Research Center, Stanford University School of Medicine

Contact: [email protected]

What is the message? This paper introduces what private equity (PE) is, why healthcare became an attractive industry for investment, and how trends in PE healthcare investments have shifted over time in response to various regulating factors, illustrated through three noteworthy PE cases. We hypothesize that the initial interest of PE in certain healthcare services derived from intrinsic qualities of the healthcare sector, macroeconomic and political factors. In addition, we speculate that the trends in PE shifting away from traditionally popular deal types, and sub-industries such as emergency medicine, anesthesiology, and air ambulances, are due to regulatory changes, including the No Surprises Act (NSA) and legal action by governing bodies, as well as macroeconomic effects from the COVID-19 pandemic and interest rate fluctuations. Finally, we emphasize the importance of aligning incentives in PE and healthcare to synergize their mutual impact, generating greater profitability and sustainably high-quality care delivery for patients to minimize costs and improve outcomes. We recommend a combination of public policy and research on the long-term impacts of PE’s new strategic investments to hold the industry accountable and inform continued regulation.

What is the evidence? Our study uses press releases, news articles and investigative reports, and academic literature to illustrate the evolution of key PE strategies in healthcare. We draw takeaways about the unique and shared financial motives, associated investment risks, and critical populations who most often bear the consequences of both PE acquisitions and failures. The case studies we cover are KKR and Envision Healthcare (buyout), Welsh, Carson, Anderson & Stowe and U.S. Anesthesia Partners (add-on), and VBC-related deals (add-on, with unique shift in exit strategy), to illustrate landmark administrative responses to PE’s historic manipulation of healthcare acquisitions for profitability. Despite the skepticism around healthcare PE given historic investment scandals, we highlight several key regulatory and political recommendations that we believe, if executed proactively, could create a more sustainable future for private capital investment in healthcare.

Timeline: Submitted: May 17, 2024; accepted after review May 23, 2024.

Cite as: Lucy W Ma, Cyrus Buckman, Shreya A Shah, Kevin A Schulman. 2024. Healthcare Private Equity: A Qualitative Review of Investments in Healthcare Services and the Impact of the No Surprises Act of 2020. Health Management, Policy and Innovation ( www.HMPI.org ), Volume 9, Issue 2.

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Introduction

The healthcare sector has always been a critical area for private equity (PE) investments, given its significant impact on the economy and its potential for innovation and growth. For the past decade, PE firms have invested more than $1 trillion into U.S. healthcare. 1 The appeal of healthcare for PE investors is multifaceted, driven by both industry-specific and macro trends. Within healthcare, the industry’s resilient “recession-proof” growth, high fixed demand, profitable loan restructuring, and the constant evolution and increasing commercialization of healthcare needs all present significant opportunities for value creation and sustainable growth. Additional macroeconomic aspects, especially in recent years, include low cost of capital from the Federal Reserve, a robust stock market, passage of the Affordable Care Act in 2010 which drove healthcare reform, Trump’s business-friendly administration boosting merger and acquisition (M&A) activity, and the COVID-19 pandemic’s acceleration of technology and healthcare delivery expansion. 2

Rising in popularity during the 1980s, healthcare PE firms utilized leveraged buyouts (LBOs) most commonly to facilitate significant M&A activity among hospitals. This M&A wave, that continued into the 1990s and 2000s, arose from federal legislation that motivated hospital consolidation by incentivizing provider adoption of health information technology in order to facilitate more consistent, scalable care delivery. 3 After Medicare introduced DRG-based payment systems in the 1980s, many hospitals also braced themselves for tightening operating margins and leaned into M&A in hopes of reducing costs and increasing revenue through economies of scale, streamlined operational efficiency, and increased market power. After initial LBOs to acquire hospitals, PE firms utilized a “buy and build” strategy to expand their platforms, and by February 2011, PE firms owned ten of the 15 largest for-profit hospital chains.

Nevertheless, healthcare PE activity has not always remained consistent. From macroeconomic trends such as changing interest rates and the COVID-19 pandemic that halted global operations, to regulatory shifts such as antitrust laws and the No Surprises Act (NSA), the PE industry has constantly needed to adapt their investment strategy in order to maintain their profitability in an evolving healthcare landscape. To fully understand how healthcare PE has responded to various changing influences and how sustainably the healthcare system can continue receiving private capital, we analyze three case studies that reflect critical changes in the industry’s primary investment themes over the past decade. Based on the responses of other players to these PE deals, we believe these case studies represent key inflection points in PE regulation and grant us valuable insight into the field’s relationship with governing regulatory, market, and financial forces.

Why Healthcare Attracts PE Investment

Between 2010 to 2017, private equity deals were valued at $42.6 billion, reflecting a 187% increase within that period. 4 A year later in 2018, the value of PE investments in healthcare had reached $100 billion, more than double the amount in 2017. 5 Starting in the late 1990s to early 2000s, increased investment of PE in healthcare services likely derives from a few reasons: high growth potential and economic resilience (and thus high returns on investment [ROI] for PE firms), deregulation or regulatory changes, and the growing need for capital investment and management expertise in healthcare facilities and services.

Recession Resilience

Healthcare has always demonstrated significant resilience to economic downturn, even showing growth during some recessions. One reason is the stable demand given health insurance as a non-cyclical means of financial support for these services. Even during the 2008 financial crisis or the COVID-19 pandemic, healthcare needs did not stop, but in fact spiked significantly to the point of overwhelming the system during the pandemic, a time when most other significant industries nearly shut down. 6 Another reason is the favorable demographic trend resulting from our aging population, especially the Baby Boomers (born between 1946-1964). As patients age, healthcare needs and demand for healthcare services both increase, supporting long-term growth in the healthcare sector by providing a steady demand for services ranging from preventative care to chronic disease management and geriatric care. 7 Thirdly, the healthcare industry has always had significant regulatory and government support through funding mechanisms like Medicare and Medicaid and other subsidies, such as the tax treatment of employer health benefits.

Regulatory Shifts

Another factor that contributed to PE’s growing interest in healthcare investment was a series of regulatory shifts to accommodate new business and care delivery models. For example, the Stark Law prohibited physicians from giving referrals that could lead to financial gain for the physician or their immediate family, and the Anti-Kickback Statute prohibited the exchange of trading valuable items for referrals of patients participating in state or federal health programs. However, as our healthcare system has increasingly recognized the need for providers to work together to improve patient outcomes and efficiency, exceptions and waivers have been added to both laws to accommodate new healthcare delivery models, such as accountable care organizations (ACOs) and value-based care (VBC). This loosening of regulations has also opened up new investment opportunities for PE firms.

Certificate-of-Need laws, requiring government approval before opening or expanding healthcare facilities, have been relaxed or repealed in many states in order to promote competition, address service shortages, and reduce unnecessary regulatory burden. As a result, there has been room for increases in and expansions of healthcare facilities, often funded by PE firms as they rolled-up practices and aimed to improve operational efficiency.

Another trend, especially seen with the rise in telehealth services during the pandemic, is efforts to make it easier for providers to operate across state lines, expanding the market for many healthcare services. These developments, along with the typical lag time that policy often experiences in keeping up with these rapid developments, has increased the attractiveness of healthcare for PE investments.

Growing Need for Capital & Management Expertise

Finally, PE firms provide significant capital investment to healthcare organizations that may not have access to other major forms of financing. This infusion of funds can greatly contribute to expanding facilities, upgrading technology and streamlining operational efficiency, and improving patient care services. In addition, group practices and hospital systems can encounter difficulty with management expertise and maintaining sustainable cash flows while providing the many services that patients need. Thus, on top of the capital they can provide, PE firms’ operational expertise is viewed as a significant benefit for small clinics that have difficulty scaling or healthcare systems struggling to stay afloat, even helping them become more competitive in concentrated areas, which can improve both patients’ continuity of care and job security of healthcare providers and staff.

Healthcare PE Strategy Over the Years: Case Studies

Pe investment models in healthcare.

The most common financing model used by PE in healthcare has traditionally been a leveraged buyout (LBO). The approach involves a financial transaction where a PE firm buys a majority stake in a healthcare company using a significant amount of borrowed money. PE firms look for healthcare companies with stable cash flows, potential for operational improvements, and a strong market position. These companies can range from hospitals and clinics to manufacturers of medical devices and pharmaceuticals. Upon identification of the target healthcare company, the PE firm finances the purchase through debt and the use of private equity funds, with debt being a significant portion of the financing deal (sometimes as high as 70%). 5 The assets of the healthcare company being acquired—and sometimes the acquiring company’s assets—can be used as collateral for the loans.

After the acquisition, the PE firm works closely with the management of the healthcare company to improve operations, cut costs, and increase efficiencies with the goal of improving profitability (also referred to as “strategic dismantling”). 3 The ultimate goal of an LBO is to sell the acquired company at a higher value than its purchase price. This can be achieved through various means, such as a sale to another company, a public offering, or selling it to another PE firm. LBOs in healthcare have been particularly attractive and feasible due to the sector’s generally stable and predictable cash flows, which are critical for servicing the debt incurred during the buyout.

Another investment model increasingly used by PE is the “platform and add-on,” or consolidation, approach. The goal is to build value by acquiring smaller companies around a larger, core company, known as the platform. 8 The platform company serves as the foundation for the consolidation strategy, providing the infrastructure and management expertise necessary to integrate add-on acquisitions of smaller companies effectively. This “buy-and-build” method aims to create significant value through synergies, market expansion, diversified product offerings, and improved operational efficiencies and economies of scale. 4,9

Buyout Strategy: KKR and Envision Healthcare

In 2018, Kohlberg Kravis Roberts (KKR), a globally leading PE firm, acquired Envision Healthcare Corporation, a provider of various healthcare services, post-acute care, and ambulatory surgery services, in an all-cash leveraged buyout (LBO) for $9.9 billion. 10–12 Of that valuation, KKR financed $5.3 billion—more than 50%—with debt. 13

Envision provided emergency department and inpatient, anesthesiology, and radiology services to over 300 healthcare facilities in 45 states and the District of Columbia, staffing other hospitals with their physicians. It was the biggest player in the physician outsourcing space, capturing 6% of the $41 billion emergency department and hospital-based physician market and 7% of the $20 billion anesthesiologist market. 15

In order to service the debt and yield the returns promised to its investors, KKR deployed surprise medical billing. 14 Health insurers establish contracts with providers (physicians and hospitals) that set up payment models for services. These contracts prohibit the provider from billing the patient for unallowed charges, essentially the amount of the provider charge that is above the negotiated payment rate, or the disallowed amount of the bill. Pursuing payment for these disallowed charges is a practice called balance billing. Out-of-network providers do not have a contract with a health plan, so they face no restrictions on balance billing for services. Providers are free to set their charges as they see fit without any further justification. In many states, courts uphold provider charges as the financial responsibility of the patient—even when these charges are grossly exaggerated or well above market prices. 16

Many of Envision’s employed emergency room and radiology doctors had deliberately remained out-of-network providers for most health plans. Prior to the passage of the NSA in 2020, the company could surprise even insured patients with drastic medical costs and burden them with significant debt. 5 These numbers ranged from $600, the average balance bill charge for an emergency room visit, to $100,000 for out-of-network providers that patients neither select for themselves nor have a choice to avoid. 17

In 2019, Envision’s, and in turn KKR’s, reliance on surprise medical billing became clear through a series of media investigations and increasing scrutiny by health economists and advocacy groups, in particular focusing on its emergency room operations managed by its subsidiary, EmCare. A team of Yale health economists found that, after EmCare took over hospital emergency departments, patient care charges nearly doubled compared to those by previous physician groups, sending out-of-network bills at a rate of 62% compared with a national average of 26%. 14 This represented a more than 81 percentage point increase in out-of-network billing rates at these hospitals that previously had low rates. 15 In addition, average physician payments increased by 117%. 15

Combined with widespread outrage from patients receiving surprise medical bills, Congress launched an inquiry into Envision after the National Bureau of Economic Research circulated the Yale study. 15 Out of this investigation birthed the bipartisan bill that would ultimately become the NSA passed in December 2020. This legislation banned the practice of surprise medical billing and effectively destroyed Envision’s business strategy. The onset of the COVID-19 pandemic further strained Envision’s finances as the numbers of elective surgeries and ER visits—the main sources of out-of-network billing and revenue—plummeted. By April 2020, only one month after the pandemic’s onset, Envision began considering the need for debt restructuring and the increasing possibility of bankruptcy. 18 In May 2023, Envision filed for Chapter 11 bankruptcy. KKR lost more than $5 billion. 18,19

Roll-up Strategy: Welsh, Carson, Anderson & Stowe and U.S. Anesthesia Partners

In 2023, the Federal Trade Commission (FTC) sued Welsh, Carson, Anderson & Stowe (WCAS), a private equity firm, for creating U.S. Anesthesia Partners (USAP) in 2012 to “roll-up” anesthesia practices in Texas and create a monopoly over the market and gain ultimate pricing power. 20 The FTC claimed in its lawsuit that the PE firm’s actions violated key antitrust legislation, including the Sherman Act (which prescribes the rule of free competition), Clayton Act (which aims to prevent anti-competitive practices), and FTC Act (which outlaws unfair methods of competition that affect commerce). To address their concerns of competitive suppression and price gouging, the FTC demanded that WCAS permanently halt their add-on deals and undergo “structural relief,” or voiding past transactions to deconstruct the consolidated practices.

PE roll-ups of anesthesia practices have been shown to increase prices by 26% after acquisition. 21 In addition, the prevalence of this investment strategy has led PE to control 18.8% of the anesthesia and 22.0% of the emergency medicine market by 2019, representing a sixfold and threefold increase, respectively, in market concentration since 2009. 22 As a result, even though high-leverage buyout deals may have been curbed through legislative efforts like the NSA, add-on deals may continue to provide PE with opportunities to obtain rapid returns in healthcare, as this strategy enables them to manipulate natural market dynamics and laws of supply and demand in order to drive up prices and increase profitability.

The FTC’s complaint describes the actions of USAP after its creation. It suggests that USAP is the largest anesthesia practice in Texas, with control over almost 70% of the commercial-insured, hospital-only anesthesia market in Houston and Dallas, and performing almost half of all cases across Texas, while earning nearly 60% of the hospital-only anesthesia revenue. The complaint reports how the firm systematically acquired anesthesia practices within target markets. It also alleges anti-competitive behavior to keep other firms out of the market, and leveraging its billing clout for other anesthesia practices it does not own. 23

In May 2024, the court granted WCAS’s motion to dismiss it from the lawsuit, though US Anesthesia Partners’ motion was denied. 23 Thus, the ultimate resolution of this question of antitrust enforcement is still unresolved, but WCAS will not be held directly responsible for USAP’s actions. Nevertheless, the negative impact of such consolidations and the financialization of healthcare that results from PE ownership are well-documented, and the future of private capital investment in healthcare needs to be carefully considered while value-decreasing and cost-inflating PE strategies remain lawful. 3,24,25

The Shift Toward Value-Based Care (VBC) Models: New Beginnings or Continuing Consolidation Strategy?

In October 2019, TPG Capital, another leading global PE firm, executed a non-controlling strategic investment in Kelsey-Seybold Clinic Partners, a renowned leader in multispecialty medical group practice management. 26

In contrast to the LBO deal type and surprise billing business model deployed by KKR through Envision, the goal of TPG and Kelsey-Seybold’s partnership was two-fold: first, to expand the accountable care model to more geographic locations in the Houston area; and second, to provide additional capital and strategic expertise to the physician leadership who would maintain control of the organization. (Although, TPG quickly flipped the practice to UnitedHealthcare’s Optum in 2022. 27 (see related article by Rooke-Ley and Bowling in this issue of HMPI )

This is just one example of how PE has turned its focus to VBC in recent years. According to a 2022 McKinsey analysis, investment activity in companies focused on VBC over patient volume (traditionally seen in fee-for-service or surprise billing models) has increased more than 400% between 2019 and 2021. 28 (see study by Nembhard et. al. in this issue of HMPI ) Additional examples of recent deals include Kinderhook Industries’ $500 million investment in VBC physician group Physician Partners and the insurance company, Humana’s, $1.2 billion joint venture with Welsh, Carson, Anderson & Stowe to expand the insurer’s VBC clinics for Medicare patients, CenterWell Senior Primary Care. 29,30 Similar to TPG’s investment in Kelsey-Seybold, Humana and WCAS aim to scale clinic operations and platform through de novo expansion and inorganic growth.

Analysts largely agree that the growing activity around VBC investments in the private sector is likely driven by concurrent public policy shifts aimed at aligning payor, provider, and investor incentives through improved reimbursement of VBC models. 31 However, while these changes may be encouraging, healthy skepticism is still warranted, given the fact that many new VBC systems are just consolidated managed care organizations (MCOs), and thus continue to run the risk of gaining monopolistic market share and pricing power. 32

Takeaways & Remaining Questions

PE’s primary aim of generating returns for investors have often led to tensions between their profit motives and the intrinsic values of the healthcare services they are acquiring and operating, such as accessibility and quality of patient care. 25,32,33 Critics argue that the short-term investment horizons of some PE firms may not always align with the long-term nature of healthcare delivery, potentially leading to cost-cutting and profit-maximizing measures that could negatively impact patient care. 32,33 In addition, the emphasis on financial performance might overshadow the fundamental healthcare mission of providing patient-centered care. Concerns about PE investment stem from the existing correlations of negative impact on patient care and outcomes with PE acquisition and ownership. 25,34

Examples of the historically popular LBO model have not reflected kindly on PE as healthcare systems like Envision Healthcare, Hahnemann Hospital, and Steward Health Care failed to produce the outsized earnings needed to repay their debt and thus faced bankruptcy following PE ownership. 19,35–37 (see related Kumar article in this issue of HMPI ) The model’s profitability has not only been heavily impacted by regulatory change like the No Surprises Act which removed a key revenue stream—out-of-network surprise billing—but also is subject to significant macroeconomic risk as PE’s ability to repay debt depends heavily on interest rates influencing their cost of capital. An open question, especially from the Steward bankruptcy, is the impact on the community from the financial collapse of an essential public service. 24,25

This model has left a great deal of carnage in its wake. In addition to the financial damage to the PE firms themselves from pursuing an unsavory (even unethical) business strategy, there is the loss to the community of the underlying healthcare company, the jobs lost as a result of LBO-induced bankruptcies, and the brunt of the consequences of the business model often manifest as higher prices for patients and worse clinical outcomes due to resource stripping to drive profitability. 24,25

While the roll-up model differs from the LBO in its degree of macroeconomic risk, it shares a key question of how PE constructs their core business model. In this case, the concern is that the strategy will use market leverage to drive up prices for services. The USAP case will help define the limits of this strategy and may portend its future application across provider markets.

Finally, the shift in PE add-on focus toward VBC may reflect hope that regulatory and reimbursement model innovation can drive PE cash flows toward delivering greater value to patients. However, as with all roll-ups, PE encounters the same risk of challenges with integration and cost-effective synergy. Furthermore, a common exit strategy is for PE to sell the consolidated outpatient entity to a healthcare services conglomerate, such as Optum, Elevance Health, and CVS Health, which raises further questions about price and quality of clinical services. Physicians and patients may find themselves whipsawed as ownership and governance of practices shift rapidly in the market.

Recommendations for the Future of Healthcare and PE

While the cash flows of healthcare delivery remain an attractive target for PE investors, the healthcare system is forced to grapple between the access to capital offered by private investment and the obligation to generate the financial returns required to sustain this investment model. The experience to date of several strategies to solve this equation seem to suggest that we have not yet reached an attractive solution that benefits patients in their search for affordable, high-quality healthcare services. Whether the adoption of “value” as a strategy for the latest round of investments results in a sustainable solution to this challenge remains an open question at this point.

Some observers have recommended policy strategies including improved regulation of fraud and abuse, greater antitrust oversight, regulating price inflation especially with consolidation and roll-ups in areas with limited market competition, and significantly increased transparency in the reporting of PE acquisitions. 38 Antitrust enforcement is also a challenge, Currently, only acquisitions over $111.4 million must be reported (under which only 10% PE acquisitions fall), so acquisition of smaller physician practices could easily be missed by antitrust agencies.

There is also concern about the lingering impact of PE investment strategies on cost, quality, and access over time. When individual firms fail, the public must struggle with the fallout. Bankruptcy of PE-backed healthcare firms was the most dominant business failure of any PE-backed sector in 2023. 39 The failure of a PE-backed retail chain not only has an impact on employees; it also limits access to essential services for the community. This begs the question of whether the public should be concerned over the long-term impact of PE-investment in healthcare. There is no data yet on what happens to health and healthcare after these bankruptcies. Healthcare providers are a limited resource, and financial distress may motivate early retirement or migration of providers from unstable markets.

As PE focuses more on VBC, many of the top firms ultimately exit their outpatient and specialty care investments by selling to large insurers and their health services branches. 27,40 Because regional and services consolidation strengthens these companies’ market power and could lead to higher costs, this strategy could add to the continuously rising cost burden on patients and the entire U.S. healthcare system. 40–42

Finally, the challenges of PE investment in healthcare reflect the issue that there is no public agency charged with oversight of healthcare markets in their entirety. There is limited data into the structure of care delivery across markets, and no entity responsible for reviewing this data. The new data transparency requirements may provide some insight into prices across markets and may bring greater visibility to business practices that serve to drive up prices. 41 However, these rules still do not extend to many PE-backed practice models.

• Miller J. What Happens When Private Equity Takes Over a Hospital. Harvard Medical School: News & Research . https://hms.harvard.edu/news/what-happens-when-private-equity-takes-over-hospital . Published December 26, 2023. Accessed March 9, 2024.
• Pauly MV, Burns RL. Equity Investment in Physician Practices: What’s All This Brouhaha? J Health Polit Policy Law . Published online February 7, 2024:11186103. doi:10.1215/03616878-11186103
• Appelbaum E, Batt R. Financialization in Health Care: The Transformation of US Hospital Systems . Center for Economic and Policy Research; 2021.
• Gondi S, Song Z. Potential Implications of Private Equity Investments in Health Care Delivery. J Am Med Assoc . 2019;321(11):1047-1048. doi:10.1001/jama.2019.1077
• Appelbaum E, Batt R. Private Equity Buyouts in Healthcare: Who Wins, Who Loses? Inst New Econ Think . 2020;(Working Paper no. 118). doi:10.36687/inetwp118
• Dillender M, Friedson A, Gian C, Simon K. Is Healthcare Employment Resilient and “Recession Proof”? Inq J Med Care Organ Provis Financ . 2021;58. doi:10.1177/00469580211060260
• Ganim LJ. Baby Boomers And Medicare. Health Aff (Millwood) . 2004;23(2):282-283. doi:10.1377/hlthaff.23.2.282-a
• Zhu JM, Hua LM, Polsky D. Private Equity Acquisitions of Physician Medical Groups Across Specialties, 2013-2016. J Am Med Assoc . 2020;323(7):663-665. doi:10.1001/jama.2019.21844
• Buy-and-Build: A Powerful PE Strategy, but Hard to Pull Off . Bain & Company; 2019. Accessed April 8, 2024. https://www.bain.com/insights/buy-and-build-global-private-equity-report-2019/
• de la Merced MJ. K.K.R. Said to Be Near Deal to Acquire Envision Healthcare. The New York Times . https://www.nytimes.com/2018/06/10/business/dealbook/kkr-envision-healthcare-deal.html . Published June 11, 2018. Accessed April 12, 2024.
• Envision Sold to KKR for $9.9 Billion. Bass, Berry & Sims PLC . https://www.bassberry.com/experience/envision-sold-to-kkr-for-9-9-billion/ . Published June 11, 2018. Accessed April 12, 2024.
• Al-Muslim A. KKR to Acquire Envision Healthcare for $5.5 Billion. Wall Street Journal . https://www.wsj.com/articles/kkr-to-acquire-envision-healthcare-for-5-5-billion-1528718957 . Published June 11, 2018. Accessed April 12, 2024.
• Appelbaum E. Envision Bites the Dust. Center for Economic and Policy Research . https://www.cepr.net/envision-bites-the-dust/ . Published July 10, 2023. Accessed April 12, 2024.
• Cooper Z, Scott Morton F, Shekita N. Surprise! Out-of-Network Billing for Emergency Care in the United States. J Polit Econ . 2020;128(9):3626-3677. doi:10.1086/708819
• Kincaid E. Envision Healthcare Infiltrated America’s ERs. Now It’s Facing A Backlash. Forbes . https://www.forbes.com/sites/elliekincaid/2018/05/15/envision-healthcare-infiltrated-americas-ers-now-its-facing-a-backlash/ . Published May 15, 2018. Accessed April 12, 2024.
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• Adler L, Milhaupt C, Valdez S. Measuring private equity penetration and consolidation in emergency medicine and anesthesiology. Health Aff Sch . 2023;1(1):qxad008. doi:10.1093/haschl/qxad008
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• Steward Health Care says it is selling the 30+ hospitals it operates nationwide. AP News . https://apnews.com/article/steward-hospital-bankruptcy-264edc6309f7b9eaa309c4113211ce30 . Published May 8, 2024. Accessed June 19, 2024.
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Nuveen: Evaluating a Private Equity Impact Investment

For five years, the private equity impact team at Nuveen led by Rekha Unnithan, CFA, had been watching Samunnati, a specialized agriculture value chain solutions provider located in Chennai, near the southeastern coast of India. Its mission was to support smallholder farmers, who comprised roughly 87 percent of Indian farm workers, by providing financing and capacity building for farmer collectives and larger, more diverse agri-enterprises. Through market linkages and working capital, Samunnati sought to raise the access, purchasing power, and connectivity for agricultural value chains in India. Launched and led by a career banker with deep expertise in rural and agricultural finance, Samunnati was poised to transform the agriculture ecosystem in India while improving the income and livelihoods of hundreds of millions of smallholder farmers.

First introduced to Samunnati in 2014, the Nuveen team had followed the company’s journey from a pilot project in the unbanked tiers of a single state in India to an agritech enterprise operating in 14 states and over 30 value chains across India. In early 2019, Samunnati began raising its Series D round of financing to further its growth, and the team at Nuveen was ready to take a closer look. Despite Samunnati’s success to date, agriculture had historically been a risky sector with significant volatility, particularly at the value chain level. In addition, the company was in its growth stage, so its systems and processes needed to further mature—specifically its information technology strategy, impact framework and reporting, and preparations as a Systemically Important Non-Bank Finance Company, a designation assigned to Samunnati given its size and significance in the economy. Finally, given the marginalization of smallholder farmers throughout history, the Nuveen team was sensitive about safeguarding this vulnerable member of the agricultural ecosystem; specifically, they wanted to ensure that the investment would not exacerbate indebtedness in the farming sector—a critical component of the overall economy and food system. The team had a lot to consider—while Samunnati’s financial prospects were robust, Nuveen was laser-focused on creating a “more inclusive world” and a “just climate transition.” Evaluating the investment would not be a simple exercise.

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Five real-world examples of private equity creating value by improving companies.

The competition for best deals in private equity is fierce and with rising valuations, fund managers are turning to increasingly sophisticated operational improvements to create value and boost returns for investors.

Blazej Kupec

May 2, 2022

In the high interest rate environment of 2023, fund managers are increasingly turning to sophisticated operational improvements to create value and potentially increase returns.

Active management in private equity is nothing new, but it gained even more significance recently as firms struggle to expand multiples with relatively costlier leverage.

Rather than relying solely on financial engineering, some fund managers are instead employing their deep industry expertise to uplift revenue, improve operational efficiency, retain talent or increase the bottom line of the companies they invest in. When executed right, the business can grow and potentially become more profitable which means it can be sold at a higher price than what it was acquired for.

Possessing these skills becomes crucial when navigating economic dislocation. Importantly, they not only equip fund managers to defend their positions but also to seize opportunities that typically emerge in downturns.

‍ How does private equity create value? ‍

Let’s recap: private equity firms create value in three distinct ways: multiple expansion, leverage and operational improvements. In the 1980s, the primary source of value creation was leverage; since then, the industry moved away from financial engineering in favour of improving the operational performance of the companies it invests in. Many fund managers believe that transforming businesses has the potential to deliver more sustainable and replicable ways to create value in portfolio companies which can, in turn, attract a higher exit premium. 

Almost all businesses can be improved in some way. Fund managers apply their deep industry expertise to uplift revenue, improve operational efficiency, retain talent, or increase the bottom line before selling upgraded companies for a higher multiple than they were acquired for. In recent years, these strategies have become more hands-on and tailored to each company’s needs and circumstances. Firms today also tend to activate their value creation playbook a lot earlier in the conversation with target companies - 80 percent of fund managers with more than $10bn in assets under management will engage in planning at or even before making the decision to invest, according to a 2022 KPMG report. ¹

But how does value creation look in real life? We explore five cases that deploy various operational levers, with a special focus on Environment, Social and Governance (ESG) considerations and digital transformation.

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Carlyle’s revamping of AZ-EM 

A classical example of creating value on the back of operational improvements is Carlyle’s 2004 buyout of AZ-EM, an operating division of Clariant, a global leader in speciality chemicals.² The firm, one of the private equity heavyweights, started its value creation initiatives by first reviewing all product lines to increase profitability - this means getting rid of ailing businesses or giving the promising ones more time to develop. Carlyle further streamlined operations, bringing margins up to industry standards, and started to manage working capital more aggressively, generating significant cash flows in the first year. Three years after the investment, the acquisition debt had been completely paid off and Caryle decided to sell 50 percent of AZ-EM’s to Vestar Capital partners for €1.4 billion, a 10x multiple. AZ-EM went public in October 2010, giving a chance to both private equity firms to reduce their stakes over time.³ ⁴

Cinven and Phadia: a case for product diversification

The buyout of Phadia, which is a leading provider of in-vitro allergy and autoimmunity diagnostics, is a telling example of how fund managers can increase value by supporting the portfolio company diversify its product offering.⁵ ⁶

In 2017, Phadia was acquired by private equity firm Cinven. The fund manager helped the company to roll out a full product suite with two new allergy and autoimmunity testing instruments. Capable of combining allergy and autoimmunity testing, these new allergology technologies delivered a throughput 4 to 5 times higher than any other combined instrument at the time.

These and other value creation initiatives - marketing revamp, rollouts in Asia, decreased lead times, larger sales teams - successfully translated to building Phadia into a lucrative business and attractive target. During Cinven’s ownership, EBITDA increased by over 50 percent from €96m to €146m, despite doing business in a recession. In a strategic move by a leading biotech product development company, Thermo Fisher acquired Phadia in 2011. The €2.47bn sale of the company resulted in a €1bn capital gain and 3.4x return for investors.⁷ ⁸

Summit Partners: an example of a buy-and-build

Buy and build can also be a great formula for expansion and added value. The strategy involves buying a strong platform company and building value through well-executed add-ons. According to Bain & Company, buy-and-build strategies give fund managers a way to “take advantage of the market’s tendency to assign big companies higher valuations than smaller ones”. ⁹

An example of a buy-and-build is the 2012 Summit’s acquisition of Infor, one of the world’s largest providers of enterprise application software. According to the firm, they worked closely with management to source and evaluate several acquisition opportunities to “broaden product reach and capabilities”. ¹⁰ Since Summit’s investment, Infor has completed nine strategic acquisitions, including GT Nexus, the world’s largest cloud-based global commerce platform. As a result, by 2017, more than half of Infor’s software revenues were derived from its cloud applications. The company added 13,000 customers since Summit’s 2012 investment and grew its employee headcount by 3,000 over five years. In 2020, Infor was acquired by Koch Industries in a deal pegged at nearly $13 billion.¹¹

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CVC’s ESG boost of a Polish convenience store chain

More recently, many fund managers started to consider sustainability factors as a potent driver of oversized returns. A premium on active ESG value creation is cited as the top driver of ESG initiatives in private equity. ¹² These initiatives may include energy-efficient improvements, better supply chain management, strengthening occupational health and safety, improving decision-making or engaging with the workforce for talent retention. 

In 2017 British private equity fund CVC acquired Żabka, Poland's largest convenience store chain. Before the CVC’s investment, the company “had a high franchisee churn rate, which was disruptive to the business and had a negative impact on customer satisfaction”. ¹³ When the fund acquired the retailer, Żabka had around 4,500 stores, managed by 3,000 franchisees.

CVC identified a number of ESG-related efficiencies and savings. For example, to replace refrigerants in 2,200 stores, reduce the plastic packaging of some products and increase sales of plant-based foods. By slashing the packaging weight for one of the chain’s sandwich brands alone, they eliminated three tons of plastic waste. Żabka became the first retailer in Poland to use 100 percent recycled plastic bottles in its branded beverages. They also launched a broad program to reduce CO2 by at least 5 percent per year and reach net zero by 2050. More recently, Żabka unveiled its first all-green energy store in Warsaw, which includes a kinetic floor, converting footsteps into energy, photovoltaics and the use of quantum dots technology to obtain solar energy through the windows. ¹⁴

For its sustainability efforts, the Polish Private Equity & Venture Capital Association awarded Żabka as the ‘Green Portfolio Company of the Year’ in 2020. More importantly, CVC’s support “significantly reduced” Żabka’s franchisee churn rate and improved customer satisfaction. The retailer recorded a 20 percent increase in aggregate sales growth over the last three years and improved employee engagement. Żabka currently manages 7,000 stores and 6,000 franchises. In the period between 2017 and 2020, gross margins increased by 3.9 percentage points. ¹⁵ The commitment to sustainability also helps recruitment efforts and has become an attractive proposition to retain key talent.

Digitalization: top of mind for value creation teams

Digitalization is another increasingly important value creation lever that may help portfolio companies increase cash flows and profitability. According to a 2022 KPMG survey, tech investments and digital transformation will double in importance over the next three years for private equity firms. ¹⁶ More technologically advanced companies are easier to integrate and can play well into buy-and-build strategies. These companies will also very likely attract a higher premium once sold. For example, shares of listed non-technology companies that implement digital technologies are valued significantly higher than firms that don’t, by up to 23 percent. ¹⁷

More complicated IT upgrades have a high investment potential but also considerable implementation risks. ¹⁸

Digitalization is used to streamline processes, reduce costs or redirect resources toward more value-added activities. Private equity firms can, for example, help refine sales processes using a system that tracks customer journeys. In logistics, sophisticated sensors are being widely implemented to have greater visibility over shipments and generate predictive analytics. 

An example of how digitalization may play out in value creation strategies is Bain Capital's investment in Kantar, a marketing research and media company. ¹⁹ The company was looking for ways to digitally transform and implement better processes, supplier and risk management, data collection and analysis and spend control. The consulting firm KPMG worked with Kantar to develop a “robust business case” and assisted with sourcing the right cloud-based procurement technology platform. The team then implemented the chosen technology and methodically started to unlock best practice source-to-contract processes and supplier risk analysis tools. Equally important, the firms ensured that the Kantar team was engaged in the journey and trained in the new system from the get-go. “The new system gives the company greater procurement control, agility and risk mitigation,” KMPG described the results in their report. On the back of the new system, Kantar can now implement new tech processes and create further value. ²⁰

Important notice: This content is for informational purposes only. Moonfare does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorised advisor. Past performance is not a reliable guide to future returns. Don’t invest unless you’re prepared to lose all the money you invest. Private equity is a high-risk investment and you are unlikely to be protected if something goes wrong. Subject to eligibility. Please see https://www.moonfare.com/disclaimers .

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Moonfare does not make investment recommendations and no communication, through this website or otherwise should be construed as a recommendation of any security. Alternative investments in private placements are highly illiquid, speculative, and involve a high degree of risk. Past performance is not indicative of future results. Investors may not get back their money originally invested and those who cannot afford to lose their entire investment should not invest. Prior to investing, carefully consider the respective fund documentation for details about potential risks, charges, and expenses. The value of an investment may go down as well as up. An investment in a private equity ("PE") fund or investment vehicle is not the same as a deposit with a banking institution. Investors receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investors who cannot hold an investment for the long term (at least 10 years) should not invest. In the most sensible investment strategy for PE investing, PE should only be part of your overall investment portfolio. The PE portion of your portfolio may include a balanced portfolio of different PE funds. For additional information, including Moonfare's affiliates, please see here .

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Private equity exit excellence: Getting the story right

In the pursuit of healthy returns, most private equity (PE) investors are primarily focused on making great purchases. Many also understand the need for great business transformations for their assets. But they often pay less attention to making a great exit. While there is often pressure to hold onto an asset—stemming from fee incentives, market timing, or a desire to give performance improvements time to take effect—this pressure should not preclude preparing for the eventual exit. A 2018 McKinsey article  emphasizes exit preparation throughout the ownership period. One of the most important elements of great exit preparation is constantly honing a well-developed, well-articulated, and evidence-backed view of why an asset represents an exciting investment opportunity.

Funds often wait too long to conceive of and gain consensus on a compelling equity narrative that articulates why a business is a great asset, how it’s going to improve (the upside for the next owner), and why it’s strategically beneficial. These weighty issues cannot be satisfactorily addressed with a traditional vendor-diligence report in the last couple months of ownership. That approach leaves insufficient time to make meaningful corrections to the business, assemble the required evidence, or even achieve real alignment between PE owners and management teams.

Many investors spend most of their energy on acquiring assets. For others, exits may be influenced by market opportunity and happen on short notice. Yet even when exits are foreseeable, fund managers tend to focus on improving an asset’s immediate performance and achieving strategic objectives, often with an eye toward the exit—but not always with an eye toward what needs to be in place to support the exit. As they approach their exit window, an asset’s management team or sponsor might have a story in mind they’d like to tell. At that point, however, it’s quite difficult to assemble the necessary evidence to reinforce that story.

We interviewed more than 30 decision makers across a range of established PE funds to better understand their exit strategies. Their insights, along with our firsthand experience, reveal a wide variety of approaches—and levels of effort—on the exit process. The best practitioners don’t wait to build the components of the story until the exit is imminent. Rather, they work to ensure the alignment of their business and exit strategies all along their asset journey. They proactively assemble the evidence necessary to tell a simple but powerful story by adhering to three key principles: keep it simple, start early, and tailor the messaging.

The exit landscape is changing

In the past decade, IPOs have represented a small fraction of PE exits (Exhibit 1). As the capital flowing to alternative investment managers—especially those in PE—continues to grow, we expect sales to PE buyers and trade sales will continue to be PE investors’ most common exit paths. 1 “Trade sale” is defined by Preqin as “The portfolio company is sold to another company.” See Glossary of terms , Preqin, accessed July 2019, docs.preqin.com.

While on its face the increased competition for deals should make exits easier and more lucrative, the timing of a sale is critical. Across industries, the delta between exit multiples at a market peak and a trough can be enormous (Exhibit 2). Poor timing on deals therefore can wipe out enormous value.

In the first quarter of 2019, the PE market was at an all-time high. As such, nearly all the fund managers we interviewed at least insinuated that an inevitable correction weighs heavily on their minds. A more challenging (and potentially less liquid) market further underscores the importance of preparing for exits. This preparation will be critical in sustaining returns.

Discipline is the heart of a great exit

Our interviewees consistently expressed a desire for more rigorous, methodical exit preparation processes. For example, the best practitioners are much more systematic in pursuing operational value. Where possible, they work to reposition a business toward higher-multiple segments, such as tech, during their ownership. They recognize the need to complement short- to midterm value creation initiatives with bolder moves that will underpin value creation for future owners. And they meticulously gather evidence of operational improvements and integrate them into a compelling narrative to share with future bidders, often beginning at least 18 months before they wish to sell. These are all characteristics of great exits.

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Still, we see considerable opportunity for improved exit preparation. Unlike the industry’s buttoned-up approach to buying assets, few funds have standardized, repeatable exit-preparation processes. Rather, exits vary drastically as each tends to be designed by an individual deal team. These teams work autonomously and rely on gut feeling and sentiment. Many fund managers expressed a desire to better focus on the exit preparation process and equity story throughout an investment’s lifetime.

A set of best practices can help any team maximize value but is particularly relevant for sales to PE buyers. In short, the most successful fund managers have solid governance practices, including key performance indicators and dashboards that track exit readiness, all of which draw on their firm’s collective experience to inform the best possible exit approach. They formalize the midterm review process, carefully evaluating the pathway to exit, adjusting their asset strategy as required. They capture hard evidence of future value-creation opportunities. The best fund managers ensure there is absolute alignment with the fund and the management team on the equity story, backed by high-quality communication materials to tell that story.

Developing the equity story

The most important thread that must run through all the exit materials is the narrative of how an asset will create value under future ownership and beyond. This narrative must be clear and concise, consisting of ample supporting evidence—and that evidence must be boiled down to key facts and ideas that are accessible to prospective buyers. This means the process of developing the exit narrative needs to begin well in advance—typically at least 18 months before the exit. It can help to consider three primary objectives: tell a simple yet powerful story, take time to assemble the evidence, and tailor the messaging to the audience.

Tell a simple yet powerful story

The most successful equity stories focus on performance today, in the near future, and in the long term, allaying three of buyers’ most common concerns:

• Am I buying a solid asset? Every description of an asset’s performance should include a comprehensive view of details of the business, its fundamental value proposition to customers, and the asset’s financial profile. Funds must ensure their numbers are truly analytically sound, encouraging management to address potential problems head-on and give straightforward answers to buyers’ difficult questions. This legwork can also serve to show buyers that these have not only been considered but properly addressed, 2 For more on preparing management to address potential problems and handle tough questions, see Green, Hayes, Seghers, and Zaets, “ Private equity exits: Enabling the exit process to create significant value ,” July 2018. inspiring confidence in the business.
• Will I be able to deliver value creation during my ownership? Investors must strictly prioritize and demonstrate the potential of a manageable number of value creation initiatives. Rather than presenting a laundry list of unsubstantiated ideas, the initiatives must be described in detail and contain ample evidence to support the claims. Funds must begin assembling this evidence early to attract the most value.
• Can I tell a compelling story to the next owner, as well as the ones beyond? It pays to think long and hard about the longer-term strategic imperatives for the business. What unique characteristics, assets, and capabilities will hold strategic value for the business, and what macroeconomic conditions are necessary for value to be realized in full?

Equity stories often manage to address the first of these questions but fall short of providing hard evidence to underpin near-term value creation initiatives. A robust and visionary articulation of how the asset is positioned to capitalize on long-term trends is often absent. Great equity stories address all three questions in a clear and sequential manner. Few assets benefit from a complex equity story, and few buyers have the patience to absorb hundreds of pages of reports.

Potential buyers can easily get spooked by a discrepancy between the story being told and current trading (the latest company financials). There is often a time lag between when sales materials are prepared and when they are presented, which can cause particular trouble where markets and businesses are volatile. For instance, one large international firm recently went to market with strong historical growth. It reached the final round of a sales process with a handful of committed bidders but had to halt final negotiations when market volatility caused a serious slowdown in current trading. The resilience of the business was a central component of its equity story, but the PE seller failed to make the volatility of the business known in its equity story. Because the PE seller didn’t tackle this potential volatility risk head-on, the financial decline took bidders by surprise—leading them to question the lack of transparency and wonder if there were other parts of the story on which the sellers were opaque—and the sale process collapsed.

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Take time to assemble the evidence.

We found that the process for assembling the components of a compelling equity story is often unstructured. Typically, the deal team retains responsibility for the asset and sketches out an idea of how the story components might fit together; where appropriate, it does so in conjunction with the management of the business. Ideally, an asset owner would conduct a readiness scan 18 months prior to anticipated exit, and they should have already agreed on the critical components of the equity story and how they fit together. A year or two of runway allows management and investors to flesh out those components by crafting the most compelling equity story for the business.

The most compelling narratives are underpinned by real evidence. A crisp evidence-based story might describe a future management initiative to expand into new markets or launch adjacent products. The story is more powerful when management can point to pilots, field trials, or other evidence that confirms the potential for creating value. One fund that owned a European entertainment business, for instance, believed a dynamic pricing model (like those of airlines), could create significant value. While there was insufficient time to roll this model out across their network ahead of the exit, they were able to run a series of pilot programs that confirmed the new pricing model could result in a meaningful increase in revenue. What had been perceived as a rather tricky asset in a challenged industry was successfully and rapidly exited.

Tailor the messaging to the audience

Understanding who will be interested in buying and why is crucial and should materially influence the asset’s storyline. For example, yield-based businesses are completely different from development businesses. Consider software companies: if growth slows, multiples fall and investors care less about the operating margin. Similarly, an asset’s story would be drastically different when targeting institutional investors on the stock exchange versus discussing a trade sale to a competing PE player.

At a more tactical level, it’s necessary to tailor an equity story to the level of sophistication and awareness of the buyer universe, educating them where necessary. Whether a fund is selling to the most sophisticated buyer or to one who is less so, the way a fund crafts an equity story provides a chance to shape the way buyers think about the opportunity.

Because exits are critical in securing overall value, PE funds should consider how to instill the same level of discipline and rigor to exits as they apply to purchasing assets. We are encouraged by examples of great exit practices—but we also note that funds do not consistently adhere to the basic elements underpinning a solid exit: articulating a clear equity story with evidence of both the current and future potential of the asset, preparing ahead of time, and adjusting for context and buyers.

No one does this perfectly every time. But when PE investors approach their exits and craft their equity stories more strategically, they have a much better chance of extracting the greatest possible value from their investments.

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Guillaume Cazalaa is an associate partner in McKinsey’s London office, where Wesley Hayes is a partner and Paul Morgan is an associate partner.

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PE Investment Memo Examples?

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Fellow monkeys: Does anyone have an example of a PE investment memo that they can share? Ideally, I'd like to see one from a prior case study when you guys went through buy side recruiting.

If nothing else, can someone give me an outline of some of the most relevant topics that I should hit upon when I (hopefully) go through recruiting? Appreciate any help, thanks.

Private Equity Investment Memo's

Here's the basic structure of a private equity investment memo as laid out by a certified private equity user. attached is an investment memo from blue point capital group.

from certified user @Minnow4"

Business and Transaction overview Financial Performance/Customer Data Industry Overview/Competitors Management Team Strategic Plan/Thesis Exit strategy Summary of Returns

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Bump, anyone?

The following would be the general outline of an investment memo based on what I saw.

• Executive Summary -> investment thesis, why the company, industry average growth rate, brief growth strategy and exit strategy
• Source of deal - Background of seller and reason for sale (retirement/spin off etc)
• History of the business
• Products and Services - Top products, their margins and % of total revenue
• Suppliers and customers - % of total revenue
• Detailed breakdown of company's daily operations and how they go about doing things e.g. sales and marketing (what are their plans/processes)
• Org chart + Management team + scoring/review
• Detailed Industry overview - Industry growth and growth drivers. Competitive landscape
• Detailed growth strategy e.g. what you plan to do with the company after buying it to get your IRR
• Investment risks e.g. FX
• Company financials - projections + public comps + M&A comps + lbo (base case, management case and what you think is right/your company)

Extra things that you can add in. 1. Overview of country if you are entering a new market 2. FX graphs 3. Overview of economic policies and political issues in the country 4. Any potential CEO/CFO lined up through headhunters 5. DD process timeline and expected completion date 6. Financing of the deal 7. Potential targets if your company follows a "buy and build strategy"' 8. Sensitivity tables

Woozy: The following would be the general outline of an investment memo based on what I saw. 1. Executive Summary -> investment thesis, why the company, industry average growth rate, brief growth strategy and exit strategy 2. Source of deal - Background of seller and reason for sale (retirement/spin off etc) 3. History of the business - how it had started off 4. Products and Services - Top products, their margins and % of total revenue 5. Suppliers and customers - % of total revenue 6. Detailed breakdown of company's daily operations and how they go about doing things e.g. sales and marketing (what are their plans/processes) 7. Org chart + Management team + scoring/review 8. Detailed Industry overview - Industry growth and growth drivers. Competitive landscape 9. Detailed growth strategy e.g. what you plan to do with the company after buying it to get your IRR 10. Investment risks e.g. FX 11. Company financials - projections + public comps + M&A comps + lbo (base case, management case and what you think is right/your company) Extra things that you can add in. 1. Overview of country if you are entering a new market 2. FX graphs 3. Overview of economic policies and political issues in the country 4. Any potential CEO/CFO lined up through headhunters 5. DD process timeline and expected completion date 6. Financing of the deal 7. Potential targets if your company follows a "buy and build strategy"' 8. Sensitivity tables

jesus christ this is not a CIM . your memo should be 2-3 pages MAX

Very helpful; thank you.

Thank you very much. Now please, can you tell us what's the diference between an investment committee memorandum and an information memorandum?

Thanks Woozy seems pretty detailed. Whiskey5 anything to add? Or delete in your opinion?

• Business and Transaction overview
• Financial Performance /Customer Data
• Industry Overview/Competitors
• Management Team
• Strategic Plan/Thesis
• Exit strategy
• Summary of Returns

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How to prepare for the case study in a private equity interview

If you're  interviewing for a job in a private equity firm , then you will almost certainly come across a case study. Be warned: recruiters say this is the hardest part of the private equity interview process and how you handle it will decide whether you land the job.

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“The case study is the most decisive part of the interview process because it’s the closest you get to doing the job," says Gail McManus of Private Equity Recruitment. It's purpose is to make you answer one question: 'Would you invest in this company?'

When the case study interview starts, you usually be given a  'Confidential Information Memorandum'  (CIM) relating to a company the private equity fund could invest in. You'll be expected to a) value this company, and b) put together an investment proposal - or not. Often, you'll be allowed to take the CIM away to prepare your proposal at home.

 “The case study is still the most decisive element of the recruitment process because it’s the closest you get to actually doing the job.  Candidates can win or lose based on how they perform on case study. People who are OK in the interview can land the job by showing the quality of their thinking, ” says McManus. “You need to show that you can think, and think like an investor.”

"The end decision [on whether to invest] is not important," says one private equity professional who's been through the process. "The important thing is to show your thinking/logic behind answer."

Preparing for a PE case study has distinctive challenges for consultants and bankers. If you're a consultant, you need to, "make a big effort to mix your strategic toolkit with financial analysis. You need to prove that you can go from a strategic conclusion to a finance conclusion," says one PE professional. Make sure you're totally familiar with the way an  LBO model  works.

If you're a banker, you need to, "make a big effort to develop your strategic thinking," says the same PE associate. The fund you're interviewing with will want to see that you can think like an investor, not just a financier. "Reaching financial conclusions is not enough. You need to argue why certain industry is good, and why you have a competitive advantage or not. Things can look good on paper, but things can change from a day to another. As a PE investor, hence as a case solver, you need to highlight and discuss risks, and whether you are ready or not to underwrite them."

Kadeem Houson, partner at KEA consultants, which specialises in hiring junior to mid-level PE professionals, says: “If you’re a banker you’re expected to have great technical skills so you need to demonstrate you can think commercially about the numbers you plugged in.    Conversely, a consultant who is good at blue sky thinking might be pressed more on their understanding of the model. Neither is better or worse – just be conscious of your blank spots.”

Felix Beuttler, a former Goldman Sachs associate and founder of FinEx Academy, says bankers and consultants have different strengths and weaknesses when it comes to the case study interview. "Consultants are often too focused on the qualitiative elements and bankers are too focused on getting the numbers right," he says. Both need to prepare with a view to overcoming their weaknesses.

A good business or a good investment?

For McManus, one of the most important things to consider when looking at the case study is to understand the difference between a good business and a good investment. The difference between a good business and a good investment is the price. So you might have a great business but if you have to pay hugely for it it might not be a great business. Conversely you can have a so-so business but if you get it a good price it might make a great investment. “

McManus says as well as understanding the difference between a good business and a good investment, it’s important to focus on where the added value lies.  This has become a critical element for private equity firms to consider now that rates are higher, prices are still comparatively high, and adding value is more difficult. "In the case study it’s really important you think about where the value creation opportunity lies in this business and what the exit would be,” says McManus.

She advises candidates to be brave and state a specific price, provided you can demonstrate how you’ve arrived at your answer.

Another private equity professional says you shouldn't go out on a limb, though, and you should appear cautious: "Keep all assumptions conservative at all times so as not to raise difficult questions. Always highlight risks, downsides as well as upsides."

Research the fund – find the angle

One private equity professional says that understanding why an investment might suit a particular firm could prove to be a plus. Prior to the case study, check whether the fund favours a particular industry sector, so that when it comes to the case study, you can add that to the investment thesis. “This enables you to showcase you have read up on the firm’s strategy/unique characteristics Something that would make it more likely for the fund you’re interviewing with winning the deal in what’s a very competitive market, said the PE source, who said this knowledge made him stand out.

However, the primary purpose of the case study is to test the quality of your thinking - it is not to test you on your knowledge of the fund. “Knowing about the fund will tick an extra box, but the case study is about focusing on the three most critical things that will drive the investment decision,” says McManus. 

You need to think through these questions and issues:

Beuttler advises his students to assemble a deck filled with a particular set of slides, including investment highlights, investment risks, a value creation strategy, returns analysis and a clear conclusion. You will also want to include slides outlining the route to deriving a return on the investment.

We spoke to another private equity professional who's helpfully prepared a checklist of points to think about when you're faced with the case study. "It's a cheat sheet for some of my friends," he says.

When you're faced with a case study, he says you need to think in terms of: the industry, the company, the revenues, the costs, the competition, growth prospects, due dliligence, and the transaction itself.

The questions from his checklist are below. There's some overlap, but they're about as thorough as you can get.

When you're considering the industry, you need to think about:

- What the company does. What are its key products and markets? What's the main source of demand for its products?

- What are the key drivers in that industry?

- Who are the market participants? How intense is the competition?

- Is the industry cyclical? Where are we in the cycle?

- Which outside factors might influence the industry (eg. government, climate, terrorism)?

When you're considering the company, you need to think about:  

- Its position in the industry

- Its growth profile

- Its operational leverage (cost structure)

- Its margins (are they sustainable/improvable)?

- Its fixed costs from capex and R&D

- Its working capital requirements

- Its management

- The minimum amount of cash needed to run the business

When you're considering the revenues, you need to think about:

- What's driving them

- Where the growth is coming from

- How diverse the revenues are

- How stable the revenues are (are they cyclical?)

- How much of the revenues are coming from associates and joint ventures

- What's the working capital requirement? - How long before revenues are booked and received?

When you're considering the costs, you need to think about:

- The diversity of suppliers

- The operational gearing (What's the fixed cost vs. the variable cost?)

- The exposure to commodity prices

- The capex/R&D requirements

- The pension funding

- The labour force (is it unionized?)

- The ability of the company to pass on price increases to customers

- The selling, general and administrative expenses (SG&A). - Can they be reduced?

When you're considering the competition, you need to think about:

- Industry concentration

- Buyer power

- Supplier power

- Brand power

- Economies of scale/network economies/minimum efficient scale

- Substitutes

- Input access

When you're considering the growth prospects, you need to think about:

- Scalability

- Change of asset usage (Leasehold vs. freehold, could manufacturing take place in China?)

- Disposals

- How to achieve efficiencies

- Limitations of current management

When you're considering the due diligence, you need to think about: 

- Change of control clauses

- Environmental and legal liabilities

- The power of pension schemes and unions

- The effectiveness of IT and operations systems

When you're considering the transaction, you need to think about:

- Your LBO model

- The basis for your valuation (have you used a Sum of The Parts (SOTP) valuation or another method - why?)

- The company's ability to raise debt

- The exit opportunities from the investment

- The synergies with other companies in the PE fund's portfolio

- The best timing for the transaction

BUT: keep things simple.

While this checklist is important as an input and a way to approach the task, when it comes to presenting the information, quality beats quantity.  McManus says: “The main reason why people aren’t successful in case studies is that they say too much.  What you’ve got to focus on is what’s critical, what makes a difference. It’s not about quantity, it’s about quality of thinking. If you do 30 strengths and weaknesses it might only be three that matter. It’s not the analysis that matters, but what’s important from that analysis. What’s critical to the investment thesis. Most firms tend to use the same case study so they can start to see what a good answer looks like.”

Softer factors such as interpersonal skills are also important because if the case study is the closest thing you’ll get to doing the job, then it’s also a measure of how you might behave in a live situation.  McManus says: “This is what it will be like having a conversation at 11am  with your boss having been given the information memorandum the day before.  Not only are the interviewers looking at how you approach the case study, but they’re also looking at whether they want to have this conversation with you every Tuesday morning at 11am.”

The exercise usually takes around four hours if you include the modelling aspect, so there is time pressure. “Top tips are to practice how to think in a way that is simple, but fit for purpose. Think about how to work quickly. The ability to work under pressure is still important,” says Houson.

But some firms will allow you do complete the CIM over the weekend. In that case on one private equity professional says you should get someone who already works in PE to check it over for you. He also advises getting friends who've been through case study interviews before to put you through some mock questions on your presentation.

Have a confidential story, tip, or comment you’d like to share? Contact: +44 7537 182250 (SMS, WhatsApp or voicemail). Telegram: @SarahButcher.  Click here to fill in our anonymous form , or email [email protected]. Signal also available.

Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)

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Private Equity in Shipping Industry [5 Case Studies] [2024]

With its complex logistics and global scope, the shipping industry presents unique challenges and opportunities for private equity firms. These investors are crucial in transforming companies through strategic capital infusion, technological upgrades, and market expansion strategies. This blog explores the transformative power of private equity in the shipping sector, highlighting how strategic investments can drive growth, improve operational efficiencies, and enhance competitive positioning. We delve into the mechanics of these investments and their profound impacts on the industry, offering insights into the strategic thinking behind private equity decisions and their long-term effects on global shipping operations.

Related: Private Equity in eCommerce Case Studies

Case Study 1 : Apollo Global Management’s Investment in Prestige Cruise Holdings

Introduction

Prestige Cruise Holdings, the parent company of Oceania Cruises and Regent Seven Seas Cruises, specializes in luxury cruise operations. The company was formed to manage premium cruise brands and enhance their market presence in the luxury cruising sector.

Apollo Global Management’s primary objective in acquiring Prestige Cruise Holdings was to expand the company’s fleet, enhance its global market share, and capitalize on the burgeoning demand for luxury cruise experiences. The investment aimed to leverage Apollo’s extensive resources and operational expertise to upscale Prestige’s operational capabilities and customer offerings.

Investment Details

In 2007, Apollo Global Management invested approximately $850 million in Prestige Cruise Holdings. This strategic investment was geared towards fleet expansion and operational enhancements. Apollo’s capital infusion was intended to enable significant upgrades to existing vessels and the acquisition of new ships to meet increasing consumer demand for luxury cruise experiences.

Strategic Initiatives

Under Apollo’s ownership, several strategic initiatives were undertaken:

• Fleet Expansion: Prestige expanded its fleet by acquiring new ships and refurbishing existing ones, enhancing the luxury and comfort offered to passengers.
• Service Enhancement: Investments were made to improve onboard services and amenities, ensuring a superior customer experience that aligned with the luxury positioning of Oceania and Regent brands.
• Market Expansion: Efforts were focused on entering new geographic markets and developing tailored cruise packages that appealed to a broader demographic of luxury travelers.
• Operational Efficiency: Apollo focused on streamlining operations to reduce costs while improving service delivery. This included optimizing supply chain management and implementing advanced data analytics for better decision-making.

The impact of Apollo’s investment in Prestige Cruise Holdings was significant:

• Revenue Growth: The company saw a substantial increase in revenues driven by higher booking rates and an expanded customer base.
• Brand Positioning: Oceania Cruises and Regent Seven Seas Cruises solidified their positions as leaders in the luxury cruise sector.
• Operational Improvements: Enhanced operational efficiencies resulted in cost reductions and improved profitability margins.

Lessons Learned

Several key lessons emerged from Apollo’s investment in Prestige Cruise Holdings:

• Importance of Brand Investment: Continuous investment in brand and service quality is crucial in the luxury service industry to maintain competitive advantage and customer loyalty.
• Strategic Capital Allocation: Targeted investments in fleet expansion and refurbishment can significantly enhance operational capacity and market reach.
• Adaptive Market Strategies: The ability to adapt and tailor offerings to meet changing market demands is vital for sustained growth in the luxury travel industry.

Case Study 2: Oaktree Capital Management’s Investment in Star Bulk Carriers Corp.

Star Bulk Carriers Corp. is a global shipping company specializing in the transportation of dry bulk cargoes. This case study examines the strategic investment by Oaktree Capital Management aimed at rescuing and revitalizing Star Bulk during a significant downturn in the global shipping market.

The primary objective of Oaktree’s investment in Star Bulk was to stabilize the company financially and strategically during a period of severe market downturns. The goal was to restructure the company’s debt, optimize its operational efficiency, and position it for future growth as market conditions improved.

In 2014, amidst a crisis in the dry bulk shipping market, Oaktree Capital Management stepped in with a substantial investment, becoming the majority shareholder. This move was part of a broader strategy to restructure the debt of Star Bulk and provide the capital necessary to weather the storm in the global shipping industry.

Several strategic initiatives were launched by Oaktree Capital Management as part of the investment in Star Bulk:

• Debt Restructuring: Significant efforts were made to restructure existing debts, which included negotiating with creditors and refinancing under more favorable terms.
• Fleet Optimization: Oaktree focused on optimizing the fleet size and composition to improve operational efficiencies and reduce costs. This included selling older, less efficient vessels and investing in newer, more economically viable ships.
• Operational Streamlining: Operational costs were meticulously reviewed, leading to enhanced operational procedures and cost-saving measures across the fleet.
• Market Diversification: Efforts were made to diversify the range of cargoes and routes to reduce dependency on volatile commodity markets.
• Financial Stability: The restructuring of debt and capital infusion helped stabilize Star Bulk’s finances, allowing it to continue operations during a challenging period.
• Operational Efficiency: Enhanced operational strategies led to reduced costs and improved profitability.
• Market Adaptability: By diversifying its service offerings, Star Bulk was better positioned to handle market fluctuations and capitalize on new opportunities.
• Timeliness of Intervention: The importance of timely and decisive intervention in a distressed company can be critical to turning around its fortunes.
• Strategic Debt Management: Effective debt restructuring can provide a lifeline to struggling companies, highlighting the need for flexible and innovative financial strategies.
• Operational Resilience: Building operational resilience is crucial for weathering industry downturns, emphasizing the need for continuous review and adaptation of operational practices.

Related: Private Equity in Real Estate Case Studies

Case Study 3: TPG Capital’s Investment in American Commercial Lines (ACL)

American Commercial Lines (ACL) is a U.S.-based provider of barge transportation services, specializing in the transport of bulk commodities. This case study examines the strategic investment made by TPG Capital to revitalize and enhance ACL’s operational and market capabilities.

The primary objective of TPG Capital’s investment was to transform ACL into a more competitive and profitable entity by enhancing operational efficiencies, improving service delivery, and expanding market reach. The goal was to capitalize on ACL’s existing market presence and enhance its capabilities to leverage emerging opportunities in the barge transportation industry.

In 2010, TPG Capital acquired a significant stake in ACL. This investment was part of a strategic move to inject capital into ACL for operational improvements and debt restructuring. The investment aimed at providing the necessary resources to enable ACL to overcome its financial challenges and to implement new strategic initiatives.

• Operational Efficiency: Introducing advanced technologies and systems to improve the operational efficiency of ACL’s fleet. This included upgrading the IT infrastructure and implementing a fleet management system to optimize fuel consumption and maintenance schedules.
• Service Expansion: ACL expanded its service offerings to include new logistics and transport services, thus broadening its market appeal and diversifying its revenue streams.
• Market Penetration: Strategies were implemented to deepen penetration in existing markets and to expand into new geographic regions, enhancing ACL’s national presence.
• Staff Training and Development: Emphasis was placed on training and development programs for staff to enhance service quality and operational safety, which are critical in the transportation and logistics industry.
• Improved Profitability: Enhanced operational efficiencies and expanded service offerings led to increased profitability and revenue growth.
• Enhanced Competitive Position: ACL emerged as a more robust player in the barge transportation market, capable of competing effectively with larger industry players.
• Strengthened Industry Reputation: ACL’s commitment to safety and service excellence, powered by TPG’s investment, greatly enhanced its reputation in the industry.
• Importance of Operational Efficiency: Continuous improvements in operational efficiency are vital for maintaining profitability in the logistics and transportation industry.
• Strategic Capital Allocation: Effective allocation of capital towards technology upgrades and operational improvements can yield significant returns.
• Employee Investment: Investing in employee training and development not only improves service delivery but also enhances employee morale and loyalty, which are crucial for long-term success.

Case Study 4: KKR & Co.’s Investment in Borealis Maritime

Borealis Maritime is a diversified maritime solutions provider that operates a fleet across multiple shipping sectors. This case study explores the strategic investment by KKR & Co., aimed at bolstering Borealis Maritime’s asset base and competitive positioning in the global shipping market.

KKR & Co. aimed to expand Borealis Maritime’s operational capabilities and fleet size to capture a larger market share and enhance profitability. The investment was structured to leverage Borealis Maritime’s existing operational strengths and to further diversify its fleet and services, making it more resilient to market volatility.

In 2013, KKR & Co. made a significant investment in Borealis Maritime, which included capital to fund the acquisition of new ships and to upgrade existing assets. This strategic infusion was intended to support Borealis Maritime’s expansion strategy in a capital-intensive industry, providing the necessary financial backing to execute its growth plans effectively.

• Fleet Expansion: Borealis Maritime significantly expanded its fleet by acquiring new vessels and modernizing older ones. This expansion was targeted at increasing capacity and improving the efficiency of its operations.
• Sector Diversification: Borealis diversified into new maritime sectors, including specialized cargo and tanker services, to reduce dependence on any single market segment.
• Operational Efficiency Improvements: Investments were made in technology to enhance operational efficiency, including fleet management systems that optimize routing and fuel consumption.
• Sustainability Measures: Emphasis was placed on adopting environmentally sustainable practices, such as retrofitting older ships to meet newer environmental standards.
• Increased Market Footprint: The expanded and diversified fleet allowed Borealis Maritime to serve more routes and offer new services, significantly boosting its market presence.
• Revenue Growth: The strategic expansion and diversification led to a considerable increase in revenues, as Borealis could tap into new markets and customer segments.
• Enhanced Operational Efficiency: The adoption of new technologies and practices reduced operational costs and improved service reliability, enhancing customer satisfaction.
• Strategic Asset Management: Active management and strategic expansion of asset bases in capital-intensive industries can drive significant growth.
• Market Adaptability: Flexibility to diversify operations and enter new market segments can provide a buffer against industry downturns.
• Sustainability as a Competitive Advantage: Incorporating sustainability into business operations not only complies with increasing regulatory demands but can also enhance the market appeal.

Case Study 5: Wilbur Ross and Navigator Holdings

Navigator Holdings is a prominent operator within the gas carrier sector, specializing in the transportation of liquefied gases. This case study explores the investment made by billionaire investor Wilbur Ross, whose strategic financial involvement aimed to leverage Navigator Holdings’ potential in the niche market of gas transportation.

The objective of Wilbur Ross’s investment was to scale Navigator Holdings’ operations, expand its fleet, and capture a larger share of the global gas carrier market. Ross aimed to position Navigator as a leader in the gas carrier industry by enhancing its operational capabilities and financial stability.

Wilbur Ross and his investment consortium acquired a controlling stake in Navigator Holdings in 2012. The investment was part of a strategic move to inject substantial capital into the company to facilitate fleet expansion and to take advantage of emerging market opportunities in the gas transport sector.

• Fleet Expansion: Significant investment was allocated to expanding the fleet, including the purchase of new, state-of-the-art vessels equipped with the latest technology for the safe and efficient transport of liquefied gases.
• Technological Upgrades: Navigator Holdings invested in advanced navigation and safety technology to enhance the operational efficiency and safety of its fleet.
• Market Expansion: Efforts were focused on expanding the company’s reach into new geographic markets and securing long-term contracts with major gas suppliers, which stabilized revenue streams and improved financial predictability.
• Operational Optimization: Operational processes were streamlined, and cost-control measures were implemented to improve profitability.
• Market Leadership: Navigator Holdings strengthened its position as a leading operator in the gas carrier market, with a significant increase in its market share.
• Operational Efficiency: Upgraded technology and improved operational processes led to higher efficiency and reduced operational costs.
• Financial Growth: The company saw a notable improvement in financial performance, including increased revenue and profitability due to expanded operations and enhanced service offerings.
• Strategic Capital Injection: Timely and strategic capital injections can revitalize a company and position it for market leadership in a niche industry.
• Focus on Safety and Technology: Investing in technology, especially in industries dealing with hazardous materials, not only improves operational efficiency but also enhances safety, which can be a significant competitive advantage.
• Long-term Market Contracts: Securing long-term contracts can stabilize revenues and provide a financial foundation for sustained growth and expansion.

Related: Private Equity in Space Exploration Case Studies

Private equity’s role in the shipping industry underscores a dynamic interplay between strategic investment and industry evolution. Through the detailed exploration of various case studies, we’ve seen how these investments catalyze significant transformations, driving companies towards efficiency and market leadership. The lessons learned from these investments not only illuminate the paths taken by these firms but also serve as a guiding framework for future investors in the shipping industry or any other sector. The impact of such strategic financial engagements highlights the potential for private equity to serve as a cornerstone for innovation and growth in global commerce.

• AI in Fashion Design: 5 Case Studies [2024]
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Nailing CFA Level I Alternative Investments: Your Guide to Excelling in an Overlooked Topic

When preparing for the CFA Level I exam , it’s easy to push Alternative Investments to the back burner. After all, it’s one of the shortest topics in the curriculum, right? But here’s the truth — overlooking this section could be a costly mistake. Yes, its weight on the exam may be smaller, but the significance of mastering this area extends far beyond the exam hall. The insights you gain here can shape the way you approach complex investment decisions in the future, influencing your analytical skills and, ultimately, your career as a financial professional.

Alternative Investments isn’t just about memorizing facts; it’s about expanding your perspective. As the investment landscape evolves, traditional assets like stocks and bonds are no longer the only game in town. Alternative Investments — from private equity to real estate, hedge funds to natural resources — are becoming increasingly central to the portfolios of sophisticated investors. And that’s exactly why understanding the foundational concepts in this area will not only set you apart as a CFA candidate but also prepare you for the challenges and opportunities that lie ahead in your career.

At AnalystPrep, we understand that while this topic might seem like a minor piece of the puzzle, it’s actually a stepping stone toward mastering the more complex Alternative Investments material in CFA Level II. We’re here to guide you through this often-underestimated topic, breaking down every concept in a way that feels manageable and relevant to your broader journey. By the end of this guide, you’ll not only be well-prepared for the exam but also feel more confident about navigating the intricacies of Alternative Investments in the real world. So, let’s dive into this together, unlocking the potential that Alternative Investments holds for your CFA exam success — and beyond.

What Are Alternative Investments Anyway?

You’ve probably come across terms like “private equity” or “hedge funds” in passing, but what exactly are Alternative Investments? Simply put, they include investment vehicles that fall outside traditional categories like public stocks, bonds, or cash. The CFA Level I curriculum narrows it down to key types:

• Private Capital
• Real Estate
• Commodities
• Infrastructure
• Natural Resources
• Hedge Funds

By understanding the role these investments play, not just theoretically but in real-world finance, you’re adding another layer of depth to your investment toolkit. And trust us, it’s worth taking the time to fully appreciate these instruments. They represent a diverse and increasingly important part of the financial landscape.

Why Bother with Alternative Investments?

You might be thinking: “If this topic is so small, why should I dedicate precious study time to it?” That’s a fair question, especially when juggling larger topics like Fixed Income and Equity Investments. Here’s the catch: though it makes up just 7%-10% of the Level I exam, Alternative Investments can offer you relatively straightforward marks — if you’re prepared. Given its low technicality and manageable content, with the right focus, you can boost your score without getting bogged down in heavy calculations.

At AnalystPrep , we’re all about maximizing your study efficiency. Instead of sweating over hundreds of complex problems, mastering this section can give you an easy win on exam day. Plus, this is not just about passing the exam; having a solid understanding of these investments will prove useful as you progress through your CFA journey and eventually work in the field.

A Logical Approach to Studying Alternative Investments

Let’s talk study strategy. Like all areas of the CFA curriculum, Alternative Investments requires a structured approach. But don’t worry — this isn’t rocket science. The CFA Institute lays out the readings in a way that makes it easy for you to build your knowledge incrementally:

• Start with a broad introduction : Understand the landscape of Alternative Investments, what sets them apart from traditional investments, and why they are appealing to certain investors.
• Dig into return calculations : While you won’t find many complex formulas here, it’s critical to know how to evaluate the returns of different Alternative Investments. Trust us, calculating the returns before and after fees (especially with concepts like hurdle rates and high-water marks) is something you’ll want to nail down.
• Get familiar with the characteristics : Each type of Alternative Investment, whether it’s Real Estate or Hedge Funds, has unique characteristics, risk factors, and return profiles. The better you understand these, the easier it will be to pick up those valuable marks on exam day.

Tackling Learning Outcome Statements (LOS) Like a Pro

Here’s a quick pro tip: when studying, don’t just focus on broad exam topics — zero in on the Learning Outcome Statements (LOS). These tell you exactly what you need to know, skill-wise. For instance, in Alternative Investments, one LOS might ask you to “describe issues in performance appraisal of alternative investments.” That’s your clue to focus on performance metrics and risks specific to this asset class.

AnalystPrep believes that mastering the LOS is your secret weapon for exam success. Our study resources are designed to help you break down each LOS, so you’re not just passively reading but actively engaging with the material. When you can clearly articulate and apply each learning outcome, you’re already a step ahead.

Why You Need to Pay Attention to This Growing Market

Now, you might be asking: “But why do I really need to know this stuff? Will it ever come up in my day-to-day as an analyst?” The answer is yes — and more often than you might think. Over the past decade, Alternative Investments have grown dramatically. More institutional and private investors are turning to these assets in search of higher returns, diversification, and protection against inflation. From hedge funds to private capital, understanding these investments is becoming increasingly crucial in modern finance.

By gaining a solid grasp of this material now, you’re preparing yourself not just for the exam but for the evolving demands of the financial industry. Knowing how to analyze and assess alternative asset classes could be the difference between making an average investment decision and delivering outstanding results for your clients or firm.

Managing Your Time: When Should You Study Alternative Investments?

This is where many candidates trip up. Since Alternative Investments is a smaller topic, it’s easy to push it to the back burner, thinking you’ll get to it later. But here’s the problem with that approach — you might forget about it entirely until crunch time. And by then, you’ve missed out on scoring some easy points.

Our advice? Treat it like any other topic. Schedule at least a week to focus on Alternative Investments, ideally in the middle of your study plan. That way, you have time to review it closer to the exam without letting the information slip away. We recommend using our AnalystPrep question bank to solidify your understanding. The more you practice, the more confident you’ll feel about breezing through these questions on exam day.

Let’s Get into the Weeds: What You Need to Learn

The CFA Level I curriculum for Alternative Investments is divided into three key readings. Let’s walk through what you’ll be covering:

• Categories, Characteristics, and Compensation Structures of Alternative Investments : This is where you get a full overview of the types of Alternative Investments. It’s like a crash course on everything from private capital to commodities, and it’s essential to understand how these investments work. Additionally, you’ll learn about compensation structures like hurdle rates and high-water marks. You’ll encounter these again in your career, especially if you work in asset management or investment banking.
• Performance Calculation and Appraisal of Alternative Investments : Performance metrics for Alternative Investments are a little trickier than for traditional assets. This reading covers the risks involved and which performance measures can help you get an accurate picture of how these investments are doing. Yes, there are some calculations here, but don’t worry — we’ll walk you through those in our video lessons and study notes, breaking them down into manageable pieces.
• Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds : Finally, this reading gets into the specifics of each asset type. You’ll learn about the potential returns, the risks, and why these assets appeal to certain types of investors. We suggest paying extra attention here. These are the kinds of questions that will pop up on exam day, and being able to differentiate between these asset classes is key to scoring those points.

Final Thoughts: Master Alternative Investments with AnalystPrep

Dismissing Alternative Investments as a side topic in the CFA Level I exam could be a costly oversight. While this section may appear small, its importance extends far beyond exam day. The foundational knowledge you gain in Alternative Investments can be a game-changer, not only for your score but for your future as a financial analyst. Whether your career leads you into asset management, private equity, real estate, or other specialized areas of finance, a firm grasp of these alternative asset classes will set you apart as a well-rounded professional.

At AnalystPrep, we understand that mastering every part of the CFA curriculum, no matter how seemingly minor, is essential to your success. Our comprehensive study tools — from mock exams and video lessons to an extensive question bank — are designed to ensure that you don’t just memorize content but truly understand the nuances of topics like Alternative Investments. This knowledge will empower you on exam day and prepare you for the real-world challenges of navigating diverse investment opportunities.

The path to CFA success is paved with preparation, and with AnalystPrep by your side, you’ll be equipped with the skills, confidence, and insight needed to excel. Trust us to help you turn even the smallest sections of the CFA syllabus into opportunities for learning, growth, and long-term career success.

Related Articles

Looking for more insights to aid your CFA preparation? Explore these useful resources from AnalystPrep:

• Topics in the 2025 CFA Level 1 Exam
• The 2025 CFA Exam Rules for Refunds, Deferrals, and Exam Day
• A Strategic Guide to Moving Forward After Failing the CFA Level I Exam
• Unpacking the Best CFA Study Methods: What’s Right for You?

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Unpacking the case for inclusivity in your portfolio

Over the past year, we have been getting a lot of questions about inclusive investing. The topic has become mired in controversy, leaving some clients uncertain about what inclusivity—the practice of deliberately incorporating diverse perspectives—has to do with investing. We’re here to help unpack this rapidly changing space and showcase how other clients are navigating it as well.

For some clients, inclusivity reflects personal values. For others, it simply makes good business sense because investing inclusively can potentially deliver stronger returns .

With these twin priorities in mind, we help clients find opportunities to invest with managers and businesses operated by people with a wide array of experiences. This diversity of experiences can help them make differentiated decisions that can enhance returns and may better align with some clients’ values.

For clients seeking enhanced returns

Often, critics present inclusivity as a distraction that will impair financial returns over time. The facts say otherwise.

Factually, inclusive investing often outperforms the market. Across all asset classes, diverse managers performed similar to or better than majority-owned peers. 1   2 In private equity, for example, minority managers 3  outperformed the BURGISS Index (a benchmark that measures returns in private markets) across key performance metrics between 1998 and 2022. 4

Part of the reason that minority managers have outperformed is because their unique experiences and networks can offer differentiated deal flow, which can enhance diversification and mitigate risk. 5

Haircare products for Black consumers are illustrative examples. Black haircare is a large and growing industry currently valued at $7 billion, with a projected compound annual growth rate (CAGR) of 6% through 2031. 6 But only 20% of venture capital goes to female founders, and only 1% of venture capital funding goes to Black founders. 7 These patterns can leave companies that operate in the Black haircare market undercapitalized. 8 Through their networks and personal experiences, minority managers can be well positioned to identify and invest in opportunities such as these.

We see similar patterns in the public markets: Companies with diverse teams can be better positioned to service the needs of their diversifying consumer bases. Beverage companies with Latino staff, for example, have successfully targeted their marketing campaigns for culturally specific events such as quinceañeras and soccer tournaments in the United States. These differentiators have been meaningful, as Latinos represented half of U.S. population growth from 2010 to 2020, and are on track to comprise 30% of the U.S. population by 2050. 9

The trend extends beyond just consumer staples. Across the world, companies that prioritized financial inclusion, for example, have outperformed the MSCI ACWI (a global benchmark) by 6% annually since 2015. 10

Outperformance of companies who are inclusive

Skeptics point out that this might not last forever. With so few minority managers and executive teams getting funding, the only ones who do are often exceptional, and that could be driving some of their enhanced returns. As time goes on, if assets get distributed more broadly, then more minority teams will get funding, and that premium might fade. But the most recent performance data that we have suggests that, at least for now, the asymmetry continues to persist.

For clients who personally value inclusivity

Though they may acknowledge that the business case is strong, some clients are primarily driven by a desire to invest in accordance with values. Having achieved an element of financial success in their own lives, they want to focus on creating opportunities for others and contributing to what they believe to be a more just and equitable society.

As a first step, these clients often apply customizations to their portfolios that divest from companies that violate their values. An LGBTQIA+ customization, for example, can screen out companies that fail to provide equitable benefits for LGBTQIA+ workers. A racial equity customization can exclude companies that have disproportionately polluted in communities of color. A gender equity customization can exclude companies that lag in leadership representation.

This “leaders and laggards” approach penalizes companies that lag in their inclusive practices by divesting from them, and shifts capital toward companies that meet the necessary criteria. In some cases (like those outlined above), there can be a business case for investing in “leaders” that also aligns with enhanced returns. In other cases, there may be no business justification, but clients choose to do so anyway simply because they want to align their investments with their personal values.

One of the things to watch out for with this approach is “impact washing”—which is what we call it when companies make exaggerated (or in some cases, entirely false) claims about their social impacts. As more investors express interest in inclusivity, more companies have responded by trying to manipulate their statistics to look more inclusive than they actually are.

Given the prevalence of impact washing, we advise against relying exclusively on self-reported data from companies. Instead, we build portfolio customizations based on data from third-party nonprofits and watchdog groups such as the Human Rights Campaign, Equileap, Violation Tracker and the Political Economy Research Institute. These organizations are staffed by professionals with deep expertise and lived experience in the issue area that strengthens the reliability of their work, and we vet our data sources much like we vet any investment manager on the platform.

Beyond portfolio customization, another approach that some clients take is to invest in active managers that use corporate engagement to push for change. Some investment managers, for example, have filed shareholder resolutions demanding that companies complete Racial Equity Audits. Other investment managers have negotiated directly with companies to get them to publicly disclose the workforce demographic data they already share with the Equal Employment Opportunity Commission. In both cases, asset managers are using their power as shareholders to push for equity on behalf of their investors.

How to get started

If inclusive investing is interesting to you and your family, your J.P. Morgan team can help you explore your options in a way that feels relevant for your goals.

1 Bella, Private Markets and Knight Foundation, Knight Diversity of Asset Managers Research Series: Industry, September 2021. 

2 NAIC, Examining the Returns 2023, February 2024. 

3 Defined here as TK.

4 2022 is the most recent data available, given the time lag in private markets. https://naicpe.com/wp-content/uploads/2023/12/NAIC-2023-Examining-the-Returns-Final.pdf

5 https://www.bcg.com/publications/2024/diversity-in-private-investments

6 https://www.linkedin.com/pulse/black-hair-care-market-size-share-growth-report-2030-plcdc/

7 https://www.fastcompany.com/91067671/women-co-founders-raise-about-20-of-venture-capital-but-we-often-overlook-them

8 Dominic Madori-Davis. “Black founders still raised just 1% of all VC funds in 2022.” TechCrunch, January 6, 2023.

9 https://www.census.gov/data/datasets/2023/demo/popproj/2023-popproj.html

10 https://emea-markets.jpmorgan.com/#research.article_page&action=open&doc=GPS-4675268-0

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Homes and commercial buildings need substantial investments to become more resilient and sustainable. Who pays for these investments has important equity implications.

Subscribe to infrastructure at metro, jenny schuetz and jenny schuetz senior fellow - brookings metro eve devens eve devens research assistant - brookings metro.

September 17, 2024

• 32 min read

Executive summary

Real estate markets have complex interactions with climate change. Homes, offices, stores, and other buildings are major contributors to greenhouse gas emissions (GHGs), the cause of global warming. At the same time, buildings—and the people inside them—are highly vulnerable to physical damage from floods , wildfire s, and high winds . Buildings in high-risk locations also face financial harms , such as rising insurance premiums and a potential decline in property values . Therefore, a green transition will require investments aimed at improving buildings’ sustainability (reducing GHG emissions) and resilience (making buildings safer). In the U.S., most of these investments will require retrofits of existing structures; new constructions adhere to more recent building codes, but they constitute a very small share of the overall building stock. 

This leads to an obvious question: Who will pay for these climate investments? Roughly two-thirds of U.S. households are homeowners; how many of them have the financial resources and technical expertise to undertake appropriate energy-efficiency and resilience upgrades? Many low-income households rent their homes, so they are dependent on their landlords’ actions. Owners of commercial properties—including apartments, offices, stores, factories, and warehouses—range from small mom-and-pop landlords to real estate investment trusts (REITs) to sovereign wealth funds. Different types of property owners have widely varying access to financing sources and costs of capital—not to mention the organizational capacity to research the right type of climate investments, obtain equipment, and oversee contractors. 

This report provides an overview of the challenges facing private-sector real estate markets as they adjust to climate change, focusing particularly on sources of funding that can support green investments in buildings. The analysis synthesizes insights from academic research, drawing particularly on recent empirical work in urban and real estate economics. The report does not address climate investments in real estate owned by government agencies or large institutional nonprofit organizations, such as universities and hospitals. 

Key findings from the report include: 

• The breadth and complexity of the industry means that climate investments are likely to emerge unevenly, particularly under the patchwork of current policies at the local, state, and federal levels. The four primary challenges to privately led climate investment are: highly decentralized ownership and decisionmaking, property owners and managers facing a lack of relevant information, fragmented funding sources, and inconsistent policies from public agencies. 
• The prospects for climate investments in both owner-occupied homes and commercial properties depend heavily on the resources of property owners—raising serious concerns about equity. Affluent homeowners can upgrade their properties by tapping into their savings or borrowing against accumulated home equity—options that would be difficult for homeowners with tight budget constraints. Rental housing raises even greater concerns because renters have lower average incomes than homeowners; moreover, low- and moderate-income renters tend to live in older, poorer-quality buildings that are less likely to meet stricter building codes or energy-performance standards. On the resilience side, low-income households and communities (as well as commercial properties) often face greater physical risks yet have fewer financial resources to protect themselves.  

Climate stresses on homes and commercial real estate will only increase in the coming decades. Better communication between public agencies and private real estate actors about climate investments, as well as deliberate attention to equity concerns, will be necessary to increase the sustainability and resilience of buildings and communities. 

Introduction

The economic, social, and human costs of climate change are becoming increasingly salient across the U.S. Reducing greenhouse gas emissions (GHGs) to slow the pace of climate change will require behavioral changes from households, businesses, civic organizations, and public agencies. Additionally, communities are struggling to protect themselves from increasingly intense—and sometimes unexpected—climate events ranging from wildfires and intense storms to extreme heat and drought.  

While all sectors of the economy will need to engage in adaptation and mitigation efforts, the real estate sector faces particular stresses. Homes, offices, stores, and warehouses are substantial contributors to GHG emissions, and these buildings are vulnerable to damage from climate events. Most real estate in the U.S. is owned by private individuals or companies, who bear the primary responsibility for maintaining and upgrading their properties. How quickly a green transition in the real estate sector happens will depend on the knowledge, resources, and decisions of millions of individual property owners. 

The goal of this report is to provide an overview of the challenges facing private-sector real estate markets as they adjust to climate change, focusing particularly on sources of funding that can support green investments in buildings. By synthesizing insights from academic research, we identify four primary challenges to more widespread adoption of climate investments: highly decentralized ownership and decisionmaking, property owners and managers facing a lack of relevant information, fragmented funding sources, and inconsistent policies from public agencies. Further, climate investments depend heavily on the knowledge and financial resources of property owners, raising serious concerns about equity issues in undertaking these investments. 

Buildings contribute to environmental damage and are vulnerable to climate events

Buildings are a substantial contributor to GHG emissions and are highly vulnerable to physical and financial risk from climate events; therefore, a green transition will require investments aimed at both mitigation and adaptation. Furthermore, the real estate sector is exposed to considerable transition risk, as local, state, and federal government officials adopt new policies and private capital markets reconsider where to channel resources. 

What kinds of investments could make buildings more sustainable and resilient? 

The building sector contributes to GHG emissions directly through energy consumption and indirectly based on where homes, offices, and stores are built. Buildings consume energy for heating, cooling, hot water, and the operating of appliances. Residential and commercial buildings together account for roughly 30% of GHG emissions (including indirect emissions from electricity generation). Additionally, where buildings are located relative to economic activity , infrastructure, and amenities impacts GHG emissions from the transportation sector. Low-density residential and commercial development creates greater distances between homes, jobs, and retail and services locations, and low-density development is difficult to serve efficiently through public transportation. Better land use planning could allow people to commute to work and run errands by using public transit, walking, or cycling. The production of building materials —especially concrete and steel—also causes GHG emissions (as discussed in a related report ). 

On the mitigation side, a variety of physical investments are needed to decarbonize buildings, as summarized in Table 1 below. Replacing heating systems that rely on natural gas or home heating oil with electric heat pumps, which both heat and cool buildings, is a major focus of the 2022 Inflation Reduction Act . Replacing old, leaky windows and doors with new, double-paned, tight-fitting windows and doors—and adding insulation and sealing air leaks—can reduce energy usage from heating and cooling systems. New appliances, such as hot water heaters, dishwashers, and clothes dryers, are more energy efficient than appliances from several decades ago. About half of U.S. homes are over 40 years old ; retrofitting older homes and commercial buildings is one of the major challenges for decarbonizing buildings. 

As for adaptation investments, buildings across the U.S. face high physical risk from several types of climate events, including flood s, wildfire s, and high winds . Extreme temperatures can also damage buildings, particularly when they occur in regions of the country that are unaccustomed to extreme heat or cold. For example, below-freezing temperatures in the Deep South are more likely to lead to water pipes bursting. 

A range of adaptation strategies could help protect buildings and their occupants from climate risks. Elevating structures in flood-prone areas, using fire-resistant exterior building materials, bolting roofs more securely against high winds, and coating external surfaces with heat-reflective ultrawhite paint are all ways that individual property owners can reduce the expected harms of climate events. Some of the most effective adaptation strategies require community-level investments , such as upgrading stormwater management systems and installing rain gardens to handle higher volumes of rainfall or increasing the tree canopy to cool entire neighborhoods.  

The cost of mitigation and adaptation investments can vary widely, making it difficult to estimate the scale of funding needed. What types of retrofitting investments are needed depends on the age, structure type, size, and quality of existing buildings. In addition, construction sector wages and benefits vary widely across regions of the country—as does even the availability of contractors with relevant expertise. Community-based investments require implementation from local or regional governments and potentially support from civic organizations. As later sections will discuss, varying expertise and access to financing by property owners is one of the major hurdles to an equitable transition of the buildings sector. 

Real estate values and operating costs are likely to change in response to climate events and policy changes  

Physical climate risk creates direct financial risk to property owners through several channels. A growing body of research shows that owner-occupied homes that face higher risks of flooding and wildfire s sell for lower prices than similar homes in the same city, and research also indicates that sales volumes for high-risk homes also decline after disasters. These papers find that impacts mostly follow in the short term after high-visibility events, but they often disappear within 3–5 years. Commercial real estate (CRE) prices also decline after flooding from intense storms . There is less consensus on whether climate risks impact rents for apartments; fewer studies have looked at residential rental markets, partly because of the difficulty in observing rent data for small geographic areas. Another notable gap in the research is the impact on real estate markets of chronic stresses, such as extreme heat and drought. 

Both acute and chronic climate stresses can also increase operating expenses for both owner-occupied and investor-owned real estate. Most notably, the past several years have seen rising insurance premiums and declining availability of policies in states such as California , Florida , and Colorado . Both households and businesses often experience disruptions in their income following natural disasters, which can increase the probability of delayed or missed rental and mortgage payments , especially among low- and moderate-income households. Climate change is also likely to impact expenditures on property maintenance, utilities, local property taxes, and user fees; further research is needed on these topics. 

While all sectors of the economy face climate risk, the physical, place-based nature of real estate makes it one of the higher-risk sectors . Uncertainty over regulatory changes to mortgage markets and financial institutions also creates substantial transition risk. One channel through which the housing finance system could discourage development in climate-risky areas would be for Fannie Mae and Freddie Mac to price location-specific risks into the cost of conforming mortgages through higher interest rates or lower loan-to-value ratios. Government-sponsored entities (GSEs) are not currently allowed to incorporate climate risk into pricing; allowing them to do so would require Congressional authorization—by no means an easy political lift . In the CRE sector, expectations of higher variance in future rental payments in risky locations may impact the cost and availability of debt and equity.  

More generally, the increasing partisan divide on climate policies at the federal level—which results in large-scale policy changes across administrations—makes it difficult for regulatory agencies and private firms to set consistent medium- and long-term strategies. Understanding the impact of policy volatility on climate investments is a critical topic for future research.  

Changes in insurance markets, including state regulation of insurers, is another area of substantial concern. Both the underlying market dynamics and the academic research on this complex topic are evolving rapidly; this report does not try to comprehensively summarize the literature. Property insurance markets are regulated by state governments, which have typically intervened to maintain affordability to households and small businesses—even if such interventions result in losses to insurance firms. Households’ willingness to pay for insurance—especially extra coverage for floods, earthquakes, and other natural disasters—is lower than the actuarially fair price to insurers. In the past several years, traditional insurance companies have scaled back their business —not writing policies for new customers, not renewing policies for existing customers, or exiting certain markets altogether—in states with high climate risk, including California, Florida, Iowa, and Louisiana. The resulting gaps in insurance markets are being partially filled by new, lower-quality firms and state-run plans (typically intended as insurers of last resort). In this quickly evolving market, policymakers and financial institutions would benefit from greater transparency on insurance pricing, coverage gaps, insurer capitalization, and the fiscal sustainability of public insurance plans. Understanding the interactions between insurance markets and mortgage markets is also important: to what extent do gaps in insurance coverage increase mortgage delinquencies and defaults? 

On the mitigation side, policy changes and shifts in private capital markets add to the transition risk. Some local and state governments are already adopting more stringent requirements for buildings’ energy performance. New York City’s Climate Mobilization Act requires roughly 50,000 older buildings to upgrade their energy performance starting in 2024, with the goal of reducing emissions 40% by 2030 and 100% by 2050 at an estimated cost of $20 billion. According to a survey from the National Association of Home Builders, Energy Star windows and appliances are among the most important features that buyers want in newly built homes. Moreover, private sector investors are willing to pay a premium for green buildings in the CRE market. It is unclear what will happen to older, less efficient buildings; in many cases, retrofitting them costs more than demolishing and rebuilding.  

Homes and commercial properties face different financing ecosystems for climate investments

The U.S. real estate market consists of three main segments: owner-occupied homes, commercial properties, and public or institutionally owned properties. Climate investments for these segments face different challenges because the availability of financing, units of decisionmaking, and regulatory environments differ across the three segments. Importantly, the financial incentives for undertaking climate investments also vary by segment, which implies that different policy levers may be needed to encourage resilience and sustainability actions. 

Owner-occupied residential properties 

About two-thirds of homes in the U.S are owned by the people who live in them. Most of these are single-family homes, with a smaller share of condominiums or cooperatives in multifamily buildings. Most owner-occupied homes are built by private, for-profit developers as part of larger residential subdivisions. Newly built housing constitutes about 1 percent of the total housing stock in any given year. Developers decide the location of new housing growth, conditional on land use regulations set by local governments. The structural characteristics of new homes, which are important for energy efficiency and resilience to climate stresses, are also determined by developers and home builders, subject to building codes adopted and enforced by state and local governments. Outside of new construction, individual homeowners make decisions about operations, maintenance, and upgrades to their homes, all of which influence resilience and sustainability. 

Sustainability investments in owner-occupied homes offer the clearest alignment of financial incentives: homeowners pay the upfront cost of energy-efficient investments and then receive the benefits of lower utility bills. Several of the recommended Energy Star upgrades —notably equipment for heating, ventilation, and air conditioning (HVAC) and water heaters—have usable lifespans around 10–15 years, creating natural opportunities for homeowners to make climate-friendly choices. Tax credits and other pricing nudges can further ensure that homeowners can recoup the costs of sustainability investments within a designated time period. 

The financial incentives for homeowners to undertake resilience investments (ones that do not also serve a sustainability function) are less clear. For homeowners in especially risky locations, some types of upgrades (elevating properties in flood zones or installing fire-resistant roofs) may be required by insurance companies for the property to retain coverage. However, these investments may not result in lower insurance premiums to help offset costs. It is much more difficult to quantify the expected savings from resilience investments (reflected in, for instance, lower probability of damage, lower value of damage, and greater preservation of resale value), in part because of the inherent uncertainty of climate events. Better cost-benefit analysis of resilience investments would help guide both property owners and policymakers. 

Commercial properties 

The commercial property segment consists of rental housing (both single-family and multifamily structures), office buildings, retail locations, and industrial properties. Unlike owner-occupied housing, most commercial properties are owned, operated, and occupied by separate entities. For example, it is common for office buildings to be owned by large institutional investors, operated by professional property management firms, and occupied by multiple companies or organizations, each of which has a separate lease that governs the terms of use for each tenant’s portion of the building. This implies that decisions about climate investments for a given property may reflect the preferences of multiple different entities, as well as building codes or other regulations set by government agencies. Industrial properties—such as factories and warehouses—are more likely than office or retail buildings to be owned by the companies that occupy them. 

A key factor in decisions about climate investments is the capacity of property owners, roughly defined as staff expertise and access to financial resources. Large, high-value properties are generally owned by large institutional investors , such as REITs, pension funds, insurance companies, private equity firms, and other specialized real estate companies. However, many commercial properties (including small apartment buildings) are owned by small-to-midsize companies, families, and individuals, often referred to as mom-and-pop landlords. The financing sources available to large institutional owners and mom-and-pop landlords are quite different. 

The financial incentives for owners of commercial properties to undertake either sustainability or resilience investments are more complicated than the incentives for homeowners. Depending on lease structure, utility bills may be paid either by property owners or tenants, which makes it harder for landlords to fully capture cost savings from energy-efficient upgrades. Some tenants may be willing to pay higher rents to occupy space in sustainable or resilient buildings, which could encourage upgrades, especially if landlords can retrofit parts of buildings as leases turn over. Designing policy nudges for the CRE sector is likely to be more difficult, given the fragmentation of decisionmaking in the sector. 

Public and institutional properties  

The third real estate segment consists of properties owned by public agencies (such as federal, state, local, or special purpose governments) and large nonprofit organizations, such as universities, religious organizations, and hospitals or medical systems. Decisionmaking systems, motives, and access to capital in this segment differ from those of either owner-occupied residential properties or for-profit CRE properties. Public agencies own a relatively small share of properties used for general-purpose office space, retail locations, or housing (unlike some countries where publicly owned housing constitutes a large share of the overall housing stock). Public ownership is more common among specialized buildings used for public purposes, such as schools, libraries, dormitories, health care facilities, train stations, and airports. Within some local markets, universities and religious organizations may be relatively large landowners; for instance, Columbia University and New York University have large real estate portfolios in Manhattan, as do the local Catholic and Episcopal dioceses. 

There are several important reasons why public and nonprofit agencies may approach climate investments differently than private, for-profit companies (of any size) or individual households do. First, governments and nonprofits often plan for longer time horizons, implying that they have a lower discount rate for net present value calculations. Second, they have access to different funding sources (such as direct tax revenues or municipal bonds for government entities), and they receive different tax treatment than households or businesses; federal and local tax policies are important factors in many real estate decisions. Municipal bond markets have begun factoring climate risk into the availability and cost of long-term lending; communities that face higher physical risk may face higher borrowing costs. 

Because this report focuses on private-led climate investment, the remainder of the report will primarily discuss investments in the owner-occupied housing and commercial property segments.  

Real estate finance encompasses a wide range of financial institutions and instruments

Real estate finance is a large and diverse sector composed of a wide range of funding sources and financial instruments. Financing structures vary across markets segments and activity types, including development and construction, acquisition of existing properties, rehab or upgrading of existing properties, and refinancing. The dual diagrams of Figure 1 display the set of stakeholders involved with climate investments in owner-occupied residential and commercial properties. 

The set of financial institutions and instruments that provide capital for purchases of existing owner-occupied properties are the most regulated part of real estate finance—and, not coincidentally, the market segment on which the best data are available. Homebuyers can obtain purchase loans and refinance loans from a wide range of banks, savings associations, credit unions, and nondepository mortgage companies. The share of nonbank lenders has risen over time; today they account for about half of all mortgages. The typical U.S. homebuyer pays 5–20 percent of the purchase price up front, using their savings. The remainder is financed as a 30-year fully amortizing fixed-rate loan. The federal government regulates mortgage terms and underwriting criteria, both to protect consumers and to ensure safety and soundness of lending institutions. Most loans are securitized after origination by the GSEs, Fannie Mae and Freddie Mac, or by their smaller public counterpart, Ginnie Mae (for Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and Department of Veterans Affairs (VA) loan products). The single-family lending space covers residential properties with between one and four units per property; larger multifamily buildings fall into the CRE category. Data on loan terms and some borrower characteristics are compiled in a publicly available database , as required by the Home Mortgage Disclosure Act.  

Because federally regulated entities dominate the home purchase mortgage market, changing federal policies could have substantial impacts on the incentives for climate investments. But currently the GSEs’ and FHA’s underwriting processes do not consider property- or location-specific climate risks or climate impacts (in terms of, for instance, energy-efficiency, water usage, or proximity to transit). In the early 2000s , Fannie Mae experimented with a small pilot program for location-efficient mortgages, offering reduced mortgage pricing for homes near transit . Freddie Mac offers some incentives for energy-efficient homes . Such programs could conceivably serve two goals: encouraging homeowners to take climate-friendly actions and reducing household expenses on utilities and/or car usage. (The latter goal could justify favorable mortgage pricing if lower expenses reduce default risk.) While these pilot programs have been quite small and/or short-lived to date, pilots offer an opportunity to test product design and market demand before programs are scaled up. 

How homeowners can obtain financing to undertake renovations and retrofits of their current homes is particularly important for the ease of climate investments. For non-climate-related home improvement projects, households typically pay through some combination of personal savings, credit card debt paid down over time, and home equity loans (HEL) or home equity lines of credit (HELOC). Obtaining a HEL or HELOC requires households to have strong credit ratings and substantial amounts of equity or other financial assets. This implies that affluent households will have an easier time financing and undertaking climate investments; lower-income households are more likely to rent their homes, and low-income homeowners often struggle to afford basic health-and-safety-related maintenance. 

Financing for new construction of owner-occupied homes is another potential mechanism to influence climate readiness. Financing sources for the development of larger residential subdivisions (usually single-family detached homes or townhomes) or multifamily condominium buildings are more like the CRE market, discussed below. Private-sector developers can obtain development and construction loans from commercial banks, along with equity assembled from their own resources and outside investors.  

Commercial real estate  

The CRE finance market is wildly heterogeneous and highly opaque to most outside observers. Commercial property owners run the gamut from individuals who own small standalone shops to multinational firms with complex portfolios of trophy properties, as well as sovereign wealth funds from around the world. One important source of capital is traditional banks, given that CRE makes up a substantial part of the portfolio s for many local and regional banks, as well as large investment banks. Other important sources include institutional investors such as REITs, pension funds, and private equity as well as insurance companies. CRE lending consists of several main segments: land acquisition, land development, and construction (referred to collectively as ADC), as well purchases and refinancing for existing income-producing buildings.  

Typically, purchases of commercial properties involve both debt and equity and may include many separate partners or entities. Commercial mortgages are much less standard than residential loans, and terms can vary widely, depending on negotiations between borrowers and lenders. Some CRE loans are held in portfolio by the originating lenders, while others are securitized into commercial mortgage-backed securities (CMBS) and sold to investors. Large companies can finance projects by issuing corporate debt, bypassing lending institutions. Equity arrangements are even more varied and complex; because of the large sums involved, large CRE deals can have multiple layers of equity partners who receive different prioritization over operating cash flows and/or property appreciation. Because CRE finance operates mostly as private contracts, very little information is publicly available.  

CRE lending operates under a very different regulatory regime than owner-occupied housing, in large part because it has less direct impact on consumers (households). Researchers in the Federal Reserve System have analyzed CRE loans held in portfolio by large banks, as part of banks’ capital assessments and stress tests. The GSEs have a nontrivial role in acquisition lending for multifamily properties. 

As with the owner-occupied sector, the diversity of CRE property owners—and varying access to capital—raises questions about the pace of climate investments and equity impacts related to policy changes (such as, for instance, requirements for buildings’ energy performance). Large corporate owners will be more able to access capital (or do so on more favorable terms) to undertake retrofits than small mom-and-pop landlords. Some local programs exist to help small, credit-constrained landlords undertake upfront investments that could pay for themselves in reduced energy costs over time. 

Public sector agencies that own real estate can finance acquisition, development, or renovations through direct revenues (such as dedicated funding appropriated by local, state, or federal legislatures) or by issuing tax-exempt bonds (for entities with independent credit authority). This report focuses on private-led climate investments, excluding publicly financed building construction and retrofits. Information on financing sources and climate investments among large nonprofit entities—including universities, medical institutions, and religious organizations—is outside the scope of this report (and virtually impossible to find data on). 

Climate investments in real estate markets have the potential to exacerbate equity concerns

In considering the equity implications arising from climate investments in the buildings sector, the impacted people and entities can be organized into four groups, as shown in Figure 2 below.  

• Building occupants and users: This includes households for owner-occupied and renter-occupied homes, as well as businesses and customers who use office, retail, and industrial properties. Resilience investments should reduce the physical risks to building occupants. Sustainability strategies can reduce financial risks or costs to building users (such as utilities and property insurance), and these strategies can encourage behavior that impacts emissions (such as water and energy usage).  
• Property owners and investors: The clearest equity concerns are that climate risks and/or policy changes could harm the value of owner-occupied homes , which are the largest financial asset for middle-income households. Mom-and-pop landlords of smaller commercial properties are also at risk for reduced incomes. 
• Surrounding communities: Unsafe buildings increase risk of physical harm for neighbors. Poorly maintained buildings, or those with declining property values, can create negative spillover effects for nearby communities. Declining property values also imply lower revenues for local governments—which are on the front lines of disaster planning and recovery, including the rebuilding of local infrastructure. 
• The upstream financial system and taxpayers:  Disruptions to rental income and declining property values pose systemic risks to banks and other mortgage lenders, CRE investors, and insurance companies. U.S. taxpayers are ultimately responsible for losses from mortgages securitized by the GSEs and public insurance or disaster recovery programs.  

The diverse range of property owners raises concerns about who can afford to undertake adaptation and decarbonization investments if they are mandated by regulators but not subsidized. In the case of most property retrofits, it is assumed that property owners will assume upfront costs, which may be recouped over time through lower operating costs, lower insurance premiums, or increased value upon the sale of the property. But many homeowners and small CRE owners face binding credit constraints and have limited savings to pay out-of-pocket for these costs. The residential rental sector is a particular concern because (a) renters have lower average incomes than homeowners, (b) low- and moderate-income renters tend to live in older, poorer-quality buildings that are less likely to meet stricter building codes and energy performance standards, and (c) owners of lower-rent buildings operate on tight margins and are less able to access financing for retrofits.  

Financial constraints will be particularly acute following natural disasters, when many properties often need to be repaired or rebuilt. Rebuilding offers an opportunity to make structures more resilient and sustainable, but property owners may have experienced income disruptions due to such disasters, and lenders may be reluctant to finance rebuilding in the same location. Increased vacancy rates or turnover in rental properties may make it more difficult for landlords to obtain loans.  

As higher climate risks translate into lower property values, higher-risk communities (neighborhoods or cities) will face cascading financial impacts. They will have more difficulty accessing insurance (or will pay higher insurance premiums), and lower property values will make it harder to access credit (such as HELOCs) to finance resilience investments. Climate-risky communities today vary widely in initial income and wealth, ranging from flood-prone, low-income, Black and Latino neighborhoods in cities like Houston and New Orleans to affluent coastal areas in Florida and California with expensive vacation and second homes. 

Equity considerations are not systematically incorporated into real estate financing decisions, either for the general financing of development, acquisition, and renovation or for the financing of climate-specific investments. The CRE segment is dominated by financial institutions, private-sector developers, and property owners who have few (if any) incentives to consider the equity impacts of their decisions. Financial regulation of this segment is primarily concerned with the safety and soundness of banks, not the impact on households or communities.  

In theory, the GSEs and state insurance regulators provide some consumer protections by pooling risks across larger markets (by making it so, for instance, homeowners in risky locations can purchase mortgages and insurance at discounted prices because they are subsidized by households in lower-risk locations). To the extent that high-risk communities are socially or economically vulnerable, this risk sharing reduces equity concerns—but such risk sharing may exacerbate such concerns as well. Risk pooling through mortgage and insurance markets also reduces the incentives for any individual property owner to change their behavior. 

Adaptation and disaster recovery programs often use cost-benefit analysis to determine payouts and investments in physical protection. For example, the expected costs of building seawalls or dams are compared to the aggregate value of property to be protected from floods. This approach inherently biases projects towards areas with more expensive real estate. 

Case study: Enterprise Resilience Academies

The challenge .

It is a stiff challenge to retrofit apartment buildings that serve low-income renters to provide more resilient, energy-efficient homes. This housing segment is characterized by highly fragmented ownership, making it difficult to provide guidance on resilience strategies at scale. Low-income rental buildings are often older, in poor physical condition, and have urgent needs for energy efficiency and resilience retrofits . These buildings house some of the nation’s most vulnerable households: people with low incomes and almost no savings—including families with children, older adults, and people with disabilities—who have extremely limited housing options. The properties operate on narrow financial margins. Unlike owners of market-rate apartments, owners of subsidized housing face programmatic limits on raising rents, which also makes it difficult for lenders to underwrite loans for major upgrades. Some public subsidies and philanthropic funds exist to cover capital improvements, including green retrofits, but these funds are not always easy to find or access. 

What Resilience Academies do 

In 2021, Enterprise Community Partners, a national nonprofit organization, launched a series of Resilience Academies to help affordable housing owners, property managers, and developers learn about strategies to increase the climate resilience of low-income housing. Each Resilience Academy brings together a regionally based cohort of affordable housing providers—nonprofit organizations, public agencies, and for-profit firms—for several weeks of in-person training sessions. The curriculum covers a range of topics, including: 

• assessing portfolio risk 
• ensuring continuity of operations during and after natural disasters 
• building new and resilient homes 
• retrofitting existing homes 
• understanding local laws and regulations 
• engaging local communities 
• and finding necessary funding and financing 

The geographic grouping allows the training sessions to focus on climate risks that are similar across each cohort. For instance, hurricanes are a primary concern to organizations across the Southeast and Gulf Coast academies, while wildfires are a chief concern among Rocky Mountain participants. Sessions include presentations from subject-matter experts, supplemented by an extensive set of written training materials . The in-person gatherings also support peer-to-peer learning and networking among similar organizations.  

Between 2021 and 2023, Enterprise Community Partners completed five regional Resilience Academies covering the Southeast, Gulf Coast, New York, New Jersey, and Rocky Mountain regions, respectively—and over 150 participating organizations attended them. To better understand the outcomes and effectiveness of the Resilience Academies, Enterprise Community Partners has contracted MEF Associates and the Institute for Sustainable Communities to conduct an evaluation . 

Looking ahead 

The Resilience Academies are a promising approach aimed at overcoming the dis-economies of scale that result from fragmented property ownership in the affordable housing market. The small-cohort model creates more efficient training methods than trying to do one-on-one outreach to individual property owners, while also creating the opportunity for peer-to-peer learning. On the other hand, keeping each regional academy small enough to allow in-depth learning implies that Enterprise Community Partners will need to conduct many separate academies to reach a substantial share of affordable housing providers. In-person trainings are necessarily resource intensive (especially given the need for subject matter experts to teach). The supplemental materials, including online videos and written training guides, are publicly accessible and offer another channel to increase the scale and reach of the program.  

Three major pain points hinder equitable outcomes of climate investments in real estate

Decentralized and heterogeneous ownership distribution   .

It is very hard to get information out to the millions of homeowners and thousands of commercial property owners responsible for making decisions about climate investments. Property owners have wildly unequal resources to undertake and finance investments related to mitigation and adaptation. The availability of contractors with expertise in climate-friendly building techniques varies considerably across local markets. 

Split levels of policy and regulation  

The federal government regulates mortgage markets for owner-occupied residential properties. State governments oversee property insurance for residential property and CRE. Local governments regulate land use, construction, and building performance and safety. Financing for CRE is regulated by federal and state banking regulators for safety and soundness. The largest CRE owners and investors—including REITs, private equity firms, and sovereign wealth funds—do not fall under the jurisdiction of banking regulators. 

Political sensitivity around climate risk–based pricing and limiting development  

Federal , state , and local elected officials are wary of allowing, let alone requiring, the prices or availability of mortgages and insurance to reflect variations in climate risk, especially for owner-occupied homes (though somewhat less so for rental housing). Few public officials want to ask households to pay more money or limit where people can live and operate businesses. Few households want to pay higher taxes to subsidize upfront investments. In parts of the country with climate-skeptical elected officials, it’s hard even to talk about the need for change, let alone to create mandates or taxes. 

Improving the sustainability and resilience of U.S. real estate markets is an important goal of the green transition. Buildings are a major contributor to GHG emissions, face high exposure to physical risk from a range of climate events, and are unusually vulnerable to financial and transition risk. Because new construction is a relatively small share of the overall building stock, most climate investments for mitigation and adaptation will require retrofits of existing buildings. 

The fragmented and diverse ownership patterns of homes, offices, and other buildings create challenges for implementing climate investments at scale and raise concerns about the equity impacts of such investments. Affluent households are much more able to afford to upgrade the energy efficiency and resilience of their primary residences than lower-income households, especially renters, who have limited decisionmaking powers over their homes. Small CRE owners, including small businesses and family-owned real estate firms, also have limited access to upfront funds for climate investments (or property upgrades in general). In areas with high risk, climate events may disrupt rental income and mortgage payments and lead to declining property values.  

A lack of coordination among local, state, and federal policymakers hinders the private sector from financing or undertaking climate investments at scale. In particular, uncertainty about the direction of federal climate policy (including subsidies for building retrofits and energy prices) is a major obstacle to the green transition in real estate markets. 

Equitable climate finance series

Funding for this research was provided by HSBC Bank USA, N.A. The program is also grateful to the Metropolitan Council, a network of business, civic, and philanthropic leaders that provides both financial and intellectual support to the program. The views expressed in this report are solely those of its authors and do not represent the views of the donors, their officers, or employees.

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