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Understand Difference of Investment Banking & Private Equity

by Nathan Zachary
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Investment banking and private equity are different fields that work to raise money for investors, but there is a considerable difference between them. Yes, we will bunk all the myths here and evaluate how they are different from each other. If you wish to pursue a career in investment banking or private equity, then these differences will help you plan a long–term career in finance.

Investment banking is all about finding businesses and looking for approaches to raising capital from the capital market. On the contrary, private equity is about searching high–end – net – worth funds and investment opportunities in other businesses. Unfortunately, both come from opposite directions to reach the same destination.

In this blog, we will discover the difference between investment banking and private equity and how these two career paths impact young professionals in a meaningful way.

What is Investment Banking?

Investment banking is an advisory service where bankers work with customers to structure mergers, organize acquisitions, raise funds and plan restructuring processes. Generally, investment banking clients are companies, governments, private entities, and individuals.

The bankers work to impress client businesses using their goodwill as advisory firms and fundraising firms. However, investment bankers will rarely do business with their own money. Instead, they offer consultation to clients about investing money in the right direction.

What is Private Equity?

It is an investment business. In private equity firms, it includes the investors who raise capital from different sources and invest in privately held corporations. Also, these firms will work collectively to purchase a majority shareholding in a publicly traded company so they can delist from the stock exchange. Private equity firms do business with their capital instead of advisory one.

Investment Banking Vs. Private Equity  

Let’s have a closer look what the actual difference between the two of them is: 

  1. Work Environment

Investment banks and private equity firms both need hardworking employees for their businesses. But, an investment banking job requires work, and employees are pretty busy. Even the employees spend more time in the office and work on weekends. But this long working pattern creates a strong relationship among employees and develops a professional bond that persists after working hours.

On the other hand, private equity employees also spend more of their time in the office, but the work environment is flexible since they are working in their businesses. A flexible working pattern is expected in the private equity sector.

  1. Industry Difference

Private equity is an investment company, while investment banking is an advisory capital-raising service. An investment bank assists clients in mergers and acquisitions, restructuring, and capital-raising transactions.

Private equity firms are different. They use capital collected from wealthy investors, pension funds, and insurance companies to invest in businesses. Private equity funds make money by convincing capital holders to invest in companies and charging a % for these pools. PE investors are not advisors but investors.

Both business models are interconnected. Investment banks often pitch buyout ideas to PE shops through a group focused on financial sponsors. A full-service investment bank can also finance PE deals.

  1. Exit Opportunities

Both careers are in high demand and recruit only top–tier talent. So there are fewer exit opportunities. However, the financial expertise obtained through investment banking is applied in different fields like asset management, venture capital, private equity, and hedge funds. On the other hand, private equity offers more attractive opportunities and a challenging work environment to break into. So, like investment banking, PR provides various options for asset management, venture capital, hedge funds, and other senior roles in the finance world.

  1. Strategies

The role of the investment banker is to prepare a presentation and prepare deal that sounds interesting to investors. But, preparation of the presentation needs in–depth knowledge and research about the business. At last, the goal is to convenience the investor to seize the opportunity.

While private equity firms don’t have external clients, the employees find opportunities that benefit the firm. Due to this difference, the PE firms employ a strategy that revolves near research about how the company would allocate the capital investment.

  1. Working Hours

When comparing private equity and investment banking, the lifestyle and work/life balance of both are very different. Investment banks require 60-80 hours of work per week. Analysts and associates typically work at least one weekend a week.

Private equity, however, can require between 40-60 hours per week depending on the team resources, current workload, and deal pipeline.

  1. Compensation

A typical salary for an investment banker includes a paycheck and a bonus. A bonus is the majority of the money a banker makes. The bonus increases dramatically as you climb up the hierarchy. The bonus component depends on both individual and group performance.

Private equity compensation is less defined than in investment banking. PE associates typically receive base and bonus pay, just like investment bankers. Base pay is usually comparable to investment banking. The bonus, like banking, is a function of individual and fund performance. Usually, a greater weighting is given to fund performance. There is very little chance that occurs when PE associates receive carry (a portion of the return the fund produces on recovery and a massive part of the partner’s compensation).

Must-have skills to get into investment banking jobs

One of the many questions during an interview for an IB job includes the question, “How many jellybeans can fit in the Empire State building?”

Though it is an odd question, the employer or the recruiter asks such a question just to analyze the way the candidate thinks.

They say intellectual ability plays a major role in investment banking. And perhaps, this is the first quality most employers look for in the candidate.

  • Management and leadership skills
  • Communication skills
  • Analytical skills
  • Networking skills
  • Entrepreneurial skills

Some of the other skills include creativity, high ethical standards, diplomacy, loyalty, and authority. Not to mention, being fluent in another language is an added advantage.

To get into banking firms, you need to first understand how investment banks recruit candidates. You need to get details about the entry points and start preparing yourself with technical skills or professional certifications. Set the right strategy (get the right educational qualification) and start focusing on mastering investment banking soft skills. Last but not the least, start applying for jobs. You can always start at the entry-level and move up the career once you’re experienced and have gained all the expertise.


Both careers are well-respected and financially lucrative. However, it is up to you to decide which career you want. Although investment banking is glamorous, it can also be very stressful and requires more time. Private equity is highly regarded. Both jobs offer very high compensation, but private equity provides a better work/life balance. Private equity is often the preferred exit route of investment bankers with a few years of experience.

Learn More To Become Certified Investment Banker To Grow in Your Banking Profession

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