Investment Banking vs. Private Equity: Which Is the Better Career Path?


Private equity is a popular exit strategy for investment banking analysts and consultants. As a result, we receive a lot of queries about the functional and day-to-day distinctions across investment banking analyst/associate roles and private equity associate roles, so we thought we'd explain it here.

To correctly compare and contrast both jobs, we will evaluate the sector, roles, culture/lifestyle, compensation, and abilities.

What is Investment Banking?

Investment banking is the business of providing clients with advice and capital-raising services. Clients might include both public and private corporations, as well as institutions and governments. Investment bankers can help customers underwrite new debt and/or equity securities issuance and guide them through the sales process. Bond sales raise debt capital, whereas an Initial Public Offering (IPO) raises equity capital. Other responsibilities include aiding, advising, and facilitating Mergers and Acquisitions (M&A), restructuring businesses, and executing broker deals for institutional and private investors.

What is Private Equity?

Private equity businesses are investment organizations that distribute capital to privately held enterprises (those that are not publicly traded on an exchange). They raise capital from affluent individuals, pension funds, insurance companies, and other institutions to invest and profit. They also charge a management fee, which is typically a percentage of the assets under management.

Education and Abilities

Both investment banking and private equity are searching for talented individuals who can demonstrate good numeracy, intellectual curiosity, and great soft skills. While a bachelor's degree is required for an analyst position, many analysts seek graduate degrees such as a Master's in Finance or Master of Business Administration (sometimes paid for by the bank) from an Investment Banking institute in Delhi and then return to work as associates.

Obtaining professional certifications such as the Chartered Financial Analyst (CFA) or the Chartered Alternative Investment Analyst (CAIA) designation is another option to demonstrate a greater degree of competence.

Investment banking and private equity both demand specific skills such as financial modeling and financial statement analysis, along with a thorough understanding of markets and economics. With our online Investment Banking courses in Delhi, you will receive the same training as new workers at the top four investment banks in our Investment Banking institute near me. Enroll in our online private equity course to learn the fundamentals of the industry, from in-depth analysis of financial statements to structuring complex add-on acquisitions in a leveraged buyout.

Practical training expertise with financial software may also be advantageous. Last but not least, exceptional communication, presentation, and writing skills are required. Our online Investment Banking courses near me will teach you how to maximize your presentation potential, strengthen your writing abilities for successful communication, and create your brand.

What Is the Difference Between Investment Banking and Private Equity?

Simply said, investment banking is a consulting/capital-raising service, whereas private equity is an investing firm. An investment bank assists customers with transactions such as mergers and acquisitions, restructuring, and capital raising.

Private equity firms, on the other hand, are groupings of investors who invest in businesses using capital pooled from affluent individuals, pension funds, insurance companies, endowments, and so on. Private equity funds make money by a) persuading capital holders to give them huge sums of money in exchange for a percentage of the money, and b) creating returns on their investments. In other words, investors in private equity are investors, not advisors.

These two business models do cross paths. Investment banks will present takeover proposals to private equity firms (usually through a specific section inside the bank focusing on financial sponsors). A full-service investment bank will also aim to provide finance for PE transactions.

Hours and Workload Differences Between Investment Banking and Private Equity

The key responsibilities of an entry-level investment banking analyst/associate include pitch book creation, modeling, and administrative duties.

Private equity, on the other hand, is less standardized; different funds will engage their associates in different ways, although certain activities are quite typical, and private equity partners will participate in all of these roles to some degree.

Culture & Lifestyle Differences Between Investment Banking and Private Equity

One of the areas where PE outperforms is lifestyle. Investment banking is not for people who want to have a good work-life balance. Leaving between 8 and 9 p.m. is considered a blessing. Furthermore, investment banking is not a "hand-holding" workplace, as you must be able to run with projects even when little instruction is supplied.

However, there are certain benefits other than money and professional opportunities. Since you are all on the battlefield together, you will undoubtedly form deep bonds with your peers.

Many analysts and associates will tell you that their investment banking counterparts, with whom they developed close while working such long hours, are some of their closest associates after college/business school.

You'll work hard in private equity, but the hours aren't as long. When there is an active deal, the lifestyle is similar to banking, but otherwise much more relaxed. You normally arrive at the office around 9 a.m. and depart between 7 and 9 p.m., depending on what you're working on.

You could be working some weekends (or parts of weekends) if you're working on an active deal, but weekends are typically your time.

Certain private equity companies have gone the "Google" route and provide free food, toys in the workplace, televisions in the office, and occasionally even a beer in the fridge or a keg in the office. Other private equity firms operate more like classic, conservative enterprises in a cubicle environment.

PE firms are often smaller in size (there are exceptions), thus your entire fund may consist of only 15 individuals. You will interact with everyone as an Associate, even your most senior partners.

Compensation Differences between Investment Banking and Private Equity

An investment banker's compensation is normally divided into two parts: salary and bonus. The majority of a banker's income comes from bonuses, which climb dramatically as you progress up the hierarchy. The bonus component is determined by both individual and group/firm performance.

Compensation in private equity is not as well defined as it is in investment banking. Like investment bankers, PE associates' income often includes a basic salary and bonuses. The starting salary is usually comparable to that of investment banking. The incentive, like in banking, is based on both individual and fund performance, with a preference for fund performance. Carry (a share of the actual return on investment generated by the fund and the majority of the partners' income) is received by very few PE associates.

Conclusion: PE Career Path vs. IB Career Path

Someone will unavoidably ask for a bottom line - "Which industry is better?" Unfortunately, it is impossible to tell if investment banking or private equity is the "better" profession in absolute terms. It all relies on the type of work you want to accomplish in the end, as well as your desired lifestyle/culture and salary.

However, for individuals who don't have a clear long-term plan, investment banking places you at the core of the capital markets and exposes you to a greater range of financial transactions (with one caveat: the breadth of exposure depends on your group).