Adapting to a changing candidate landscape in private equity
With associate hiring processes ramping up, it has become clear that firms need to evolve how they assess talent to align with current market conditions.
The private equity industry has experienced significant shifts over the past two to three years, directly impacting the cohort of candidates seeking their first move into private equity.
The private equity industry has experienced significant shifts over the past two to three years, directly impacting the cohort of candidates seeking their first move into private equity.
Lower deal volumes and pandemic-era training conditions have shaped the exposure junior professionals receive, influencing their performance in recruitment processes. In many cases, these candidates are not meeting benchmarks set by previous cohorts.
However, this does not mean they are less capable or unsuitable hires. Instead, firms must recognise how market conditions have affected candidates' experience to effectively identify high-calibre future talent.
Understanding the shift
Private equity deal volumes have been in decline since the peak of 2021. While 2024 has seen a rebound in acquisitions and exits, activity remains well below pre-pandemic levels. As a result, today’s entry-level private equity candidates have primarily operated in a down market.
Previous cohorts of advisory candidates gained exposure to a broad range of deal structures and debt instruments early in their careers, working on diverse transactions at high volumes. In contrast, many of today’s candidates have had fewer opportunities to engage in varied deals, limiting their hands-on experience. This directly impacts their technical skills - not due to a lack of ability, but rather a lack of exposure.
For example, in a standard LBO modelling test, current candidates may not perform at the same level as those from previous years. However, this does not mean they lack the potential to succeed in private equity or develop into strong investors. It raises a crucial question for firms: What are we really trying to assess?
Previous cohorts of advisory candidates gained exposure to a broad range of deal structures and debt instruments early in their careers, working on diverse transactions at high volumes. In contrast, many of today’s candidates have had fewer opportunities to engage in varied deals, limiting their hands-on experience. This directly impacts their technical skills - not due to a lack of ability, but rather a lack of exposure.
For example, in a standard LBO modelling test, current candidates may not perform at the same level as those from previous years. However, this does not mean they lack the potential to succeed in private equity or develop into strong investors. It raises a crucial question for firms: What are we really trying to assess?
Rethinking the evaluation process
When hiring at the associate level, firms seek individuals with the potential to develop into well-rounded investors. While technical ability is important, strong financial modelling skills are only one component of success. Given the current landscape, firms should take a more nuanced approach to candidate assessments rather than relying on rigid pass/fail criteria based on traditional tests.
Key considerations:
- Is it necessary for candidates to build a full LBO model from scratch, or should they simply demonstrate a strong understanding of financial principles?
- Should assessments focus more on problem-solving skills? A paper LBO or verbal case discussion may be more effective in evaluating how candidates think. Some of the best investors may not excel in pure modelling tests but possess exceptional analytical judgment.
- Are mental agility and numerical reasoning better indicators of long-term success? Performance in a modelling test often depends on the training and exposure a candidate has received in their current role. If a candidate is highly numerate and adaptable, firms may be better positioned to provide the necessary training.
Financial modelling skills can be taught, and test outcomes do not always reflect true technical capability. Often, the best performers in modelling assessments are simply those with the most practice, rather than those with the highest potential.
Evolving the approach
We’re not suggesting lowering the bar - far from it. Instead, firms need to be crystal clear on what their assessments are designed to measure. Testing should be structured to identify the skills that matter most for success. This means evolving the process to reflect the current deal environment, such as:
- Using verbal case discussions to gauge financial understanding and strategic thinking
- Incorporating mental agility and numerical reasoning tests to evaluate adaptability
- Offering paper LBO exercises that focus on conceptual knowledge rather than pure execution
Our advice
As associate hiring processes begin, private equity firms should take a fresh look at their evaluation methods. While today’s candidate pool may differ from that of previous years, this does not indicate a decline in quality - only a shift in exposure.
By refining assessment strategies to better align with current market conditions, firms can ensure they identify and hire the strongest talent - not just those who can ace a modelling test. The best investors are not always the best modellers, and recognising this distinction will be key to making the right hiring decisions.
By refining assessment strategies to better align with current market conditions, firms can ensure they identify and hire the strongest talent - not just those who can ace a modelling test. The best investors are not always the best modellers, and recognising this distinction will be key to making the right hiring decisions.
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