Investment Banking Vs. Private Equity - Financial Edge (2022)

Investment Banking Vs. Private Equity

Investment banking and private equity are two of the most prestigious and competitive areas in finance, offering significant opportunities for advancement and high compensation. However, there are many differences between the two career paths. Investment bankers provide advice and assistance in raising capital while private equity involves making investments. Private equity is often perceived as an exit opportunity for investment bankers.

Both spheres demand top talent and require strong numerical, business, and financial acumen as well as soft skills such as communication and presentation. The ability to manage relationships is particularly important. While a degree in business may help get an interview, graduates from other areas that require technical expertise are also in high demand. For example, some sectors such as healthcare, telecommunications and technology (including artificial intelligence and robotics) require specialized expertise. Degrees in mathematics or physics are also quite well received. Both careers demand exceptionally long hours, with investment banking often requiring analysts and associates to work 80 hours a week or more. Private equity generally offers a better work/life balance, but long hours may be required, particularly during the execution phase of a deal.

Key Learning Points

  • Both career paths hold candidates to extremely high standards and require robust numerical and financial literacy, along with communication, presentation, and relationship building skills.
  • Investment banks offer support, advice, and facilitation of transactions such as IPOs, M&A, debt issues, and broker execution.
  • Private equity firms are buy-side investment firms that invest their own money in companies that are not publicly traded.
  • Both areas offer excellent compensation, but particularly in investment banking the hours can be exceptionally long.

What is Investment Banking?

Investment banking is the business of offering advice and capital raising services to clients. These clients can range from public and private companies to institutions and governments. Investment bankers can underwrite new debt and/or equity securities issues for clients and support them through the sales process. Debt capital is raised through bond offerings while equity capital is raised through an Initial Public Offering (IPO). Other activities include assisting, advising, and facilitating Mergers and Acquisitions (M&A), restructuring companies, or executing broker trades for institutions and private investors.

The day-to-day activities in investment banking are diverse and depend on the function and seniority of the position. On the brokerage (sell-side), equity analysts may conduct research to make buy, hold or sell recommendations. Brokerage and investment banking are separated by a “Chinese wall,” an ethical barrier to prevent conflicts of interest. Professionals may participate in market-making activities by connecting buyers and sellers and providing liquidity. Across the Chinese wall, investment bankers work on deals to raise capital, buy or sell companies, or offer advice on restructuring and other business issues. The hierarchy varies across different institutions, but typically an analyst class is composed of university graduates while new MBAs are hired as associates. The progression then goes to vice president, senior vice president, and finally, the golden ring of managing director.

(Video) Investment banking vs private equity

Investment banks are classified according to their size, based on several factors such as trading volume, the number of offices, and the number of employees. Banks normally fall within four categories – regional boutique banks, elite boutique banks, middle-market banks, and bulge bracket investment banks (smallest to largest). The latter include large US names such as JP Morgan, Goldman Sachs, Citigroup, Bank of America, and Morgan Stanley, as well as HSBC and Barclays from the UK, the French BNP Paribas and Societe Generale, Swiss UBS and Credit Suisse, and Germany’s Deutsche Bank.

What is Private Equity?

Private equity firms are investment businesses that allocate capital to privately held businesses (i.e. not publicly listed and traded on an exchange). They source capital from wealthy individuals, pension funds, insurance companies, and other institutions to invest and realize a return. In addition, they also charge a management fee that usually represents a percentage of the assets under management.

Private equity investors typically exit an investment through an Initial Public Offering (IPO), which is the process of taking a company public. While this is also the objective of venture capital firms, it is important to distinguish between them since both the type and size of investee companies, along with ownership stakes, are different. Venture capital is often limited to startups in areas like technology and biotech, while private equity firms may invest in companies of any size from any industry. They can use both cash and debt to make investments, where venture capital firms use only equity.

The four main functions in private equity companies are:

Investment Banking Vs. Private Equity - Financial Edge (1)

  • Fundraising
  • Screening and making investments
  • Managing investments and portfolio companies
  • Exiting the investment

Some of the largest institutions in private equity include The Blackstone Group, CVC Capital Partners, KKR & Co. and The Carlyle Group.

(Video) The Private Equity Associate - Course Introduction - Financial Edge

Education and Skills

When it comes to education and skills, both investment banking and private equity are looking for talented individuals who can demonstrate high numeracy, intellectual curiosity, and strong soft skills. While a bachelor’s degree is a prerequisite for an analyst role, many analysts pursue graduate degrees such as a Master’s in Finance or Master of Business Administration (often paid for by the bank) and return to move on to associate positions.

Another way to demonstrate a higher level of competence is by obtaining professional qualifications like the Chartered Financial Analyst (CFA) designation or the Chartered Alternative Investment Analyst (CAIA) designation.

Both investment banking and private equity require specific skills like financial modeling and financial statement analysis, as well as a strong knowledge of markets and economics. Receive the same training as new hires to the top 4 investment banks with our online investment banking course. Or enroll on our online private equity course, to master the core technical skills, from in-depth financial statement analysis to structuring complex add-on acquisitions in a leveraged buyout.

Hands-on experience with financial software could also be a plus. Last, but not least, superlative communication, presentation and writing skills are also essential. Our online business toolkit course will help you to unlock your presentation potential, understand how to develop your writing skills to communicate effectively, and build your brand.

Access the free download to learn more about atypical career path in Private Equity, covering progression, education and certifications.

(Video) The BEST Beginner's Guide to Hedge Funds, Private Equity, and Venture Capital!

Hours

Lifestyle and work/life balance are quite different when comparing investment banking and private equity. In terms of work hours, investment banks demand anywhere from 60 to 80 hours per week, and analysts and associates often work at least one weekend day as well. In contrast, private equity (of course depending on factors such as team resources, current workload, and deal pipeline) could require anywhere from 40 and 60 hours per week but rarely demand weekends.

Salary

Compensation for both career paths can be quite lucrative. Entry-level positions for investment bankers at bulge bracket banks typically start from $90,000 with bonuses ranging (based on performance) anywhere from 50% to 100%.

In private equity, analysts can expect a starting salary of around $100,000 plus a performance-related bonus. After a few years of experience, both careers offer base salaries in excess of $150,000.

Exit Opportunities

Since both careers are intellectually demanding and recruit only top-tier talent (typically from Ivy League universities), it’s not surprising that there are quite a few exit opportunities. The financial expertise acquired through investment banking can be applied in areas like asset management, private equity, venture capital, and hedge funds. Private equity offers a more attractive work/life balance but is also potentially even harder to break into. Like investment banking, PE also offers opportunities to move into asset management, hedge funds, venture capital, or other senior roles in finance.

Conclusion

While both careers are highly regarded and financially lucrative, the choice is personal. Investment banking is typically viewed as glamorous but also requires longer hours and the sacrifice of a personal life. Private equity is extremely prestigious. Compensation for both careers is very high, but the work/life balance in private equity is better, it is often the preferred exit route for investment bankers who have a few years of experience.

(Video) The Investment Banker - Course Introduction - Financial Edge

To learn more about thetypical career path in Private Equity, access the free download.

Additional Resources

Investment Banking Course

Guide to Investment Banking Summer Internships

Investment Banking Summer Internships 2023

FAQs

Which is better investment banking or private equity? ›

Both careers demand exceptionally long hours, with investment banking often requiring analysts and associates to work 80 hours a week or more. Private equity generally offers a better work/life balance, but long hours may be required, particularly during the execution phase of a deal.

Who makes more money investment bankers or private equity? ›

You can earn a lot of money if you're successful in either field, but the ceiling is far higher in private equity for the same reason the ceiling is higher for real estate investors than it is for brokers: if an asset's price increases by 2x, 5x, or 10x, the investors reap all the gains (see: more the private equity ...

Is equity research easier to get into than investment banking? ›

Both investment banking and equity research are difficult areas to get into, but barriers to entry may be slightly lower for equity research.

What is the difference between private banking and investment banking? ›

Private bankers typically manage the assets of wealthy individuals, families, and high-net-worth businesses. In contrast, investment banking refers to the activities performed by financial institutions.

Is private equity a stressful job? ›

It's extremely difficult to get into private equity, and once you're in, the job is stressful and requires long hours and sacrifices, especially when deals are in their final stages.

How many hours a week do private equity analysts work? ›

Private Equity Analyst Hours

To be conservative, I'll say the average range is 60 – 80 hours per week, with numbers at the top end of that range (or even above it) when a deal is in its final stages. Weekend work tends to be minimal, but it does come up when deals are in their final stages.

Can investment bankers become billionaires? ›

Probably not. You can start off in IB, be a wonderful deal maker and then invest your money wisely (or) start a business of your own / that can lead you to being a billionaire.

Why are investment bankers paid so much? ›

Why are bankers paid so much? The advocate would say they're paid so much because the banks work on very important transactions that generate big fees. In exchange for such important work, they need to be smart, hard-working, and highly skilled – and thus, well-compensated.

What pays more than private equity? ›

Hedge fund compensation is more variable than private equity salaries + bonuses, but at the junior levels, you'll most likely earn a bit more in private equity. At the top levels, a star hedge fund PM who has a great year could easily earn more than an MD in private equity – depending on the fund size and structure.

Can investment banking go to equity research? ›

Equity Research Exit Opportunities

It's far easier to transfer into investment banking first if you want to go that route. It's far more common to move to hedge funds or asset management firms since there's a direct skill set overlap – you analyze public securities and make investment recommendations in each one.

Why is investment banking prestigious? ›

That said, investment banking is a highly competitive field. Because the pay is so high and the job is so prestigious, particularly in cities such as New York, applicants far outnumber job openings every year. Having the right skills and being able to display them is paramount for getting a foot in the door.

Does equity research pay well? ›

The average entry-level Equity Research Associates in major investment banks earn $150,000 in total annual compensation, 75% of which is made up of their base salaries. VP-level Analysts make around $200K – $300K a year, while the compensation for the Senior level might double to $600K.

Why private banks are better? ›

In contrast, the performance of private sector banks was much better. Private sector banks witnessed a 19.3 per cent increase in income earned from balances with the RBI and other interbank funds, compared to a 7.2 per cent rise for their public sector peers.

Is working in private equity worth it? ›

A career in private equity can be highly rewarding, both financially and personally. Private equity managers often take a great deal of satisfaction from successfully guiding their portfolio companies to new high levels of profitability.

What is the role that an investment bank plays in a private equity deal? ›

Underwriting New Stock Issues

One of the primary roles of an investment bank is to serve as a sort of intermediary between corporations and investors through initial public offerings (IPOs). Investment banks provide underwriting services for new stock issues when a company decides to go public and seeks equity funding.

Are hours better in private equity? ›

In private equity, you'll work hard, but the hours are not nearly as bad. Generally, the lifestyle is comparable to banking when there is an active deal, but otherwise much more relaxed. You usually get into the office around 9am and may leave between 7pm-9pm depending on what you're working on.

Is it hard to break into private equity? ›

Private equity may be the most difficult sector to break in to in all of financial services. European PE firm Terra Firma is said to receive 250 applications for every available role.

Is private equity exciting? ›

Overall, I think it is clear to say that working in the Private Equity industry is an exciting career path, and will always stay interesting, no matter what portfolio firms or investment deals you work on. About Raw Selection: Raw Selection favours a meticulous approach to candidate research.

Do investment bankers work 100 hours a week? ›

The average working hours of an investment banker is reported to be around 60 to 80 hours a week. Getting any deals done in the investment banking world requires a lot of manpower since there are actually a lot of moving pieces in mere simple financial transactions.

Do investment bankers nap? ›

Investment banker salaries

That pay looks pretty good from this 8-hours-of-sleep-per-night, frequent-napping, part-time freelancer's point of view.

How much do first year private equity analysts make? ›

Analysts can expect to earn a total cash compensation (base salary and bonus) in the range of $100,000 to $150,000, with most of it coming from the base salary and the bonus averaging around 70% of the base.

What is the highest paying job in finance? ›

List of the Best Highest-Paying Jobs in Finance Degree
  • Investment banker.
  • Financial Analyst.
  • Personal Finance Advisor.
  • Financial Manager.
  • Financial Risk Manager.
  • Economist.
  • Private Equity Associate.
  • Hedge Fund Manager.
7 Aug 2022

Are investment bankers richer than lawyers? ›

Starting salary of an investment banker is marginally higher than that of a lawyer. Lawyers ideally should be more updated with developments as the amendments in law, especially corporate law happens frequently as opposed to the amendments in aspects of investment banking.

Who is the most successful investment banker? ›

Top 6 Richest Investment Bankers of all Time
  • Nathaniel Rothschild (Net worth: $1 trillion) ...
  • Jim Simons (Net worth: $23.5 billion) ...
  • Joseph Safra (Net worth: $22.4 billion) ...
  • Petr Kellner( Net worth: $18.4 billion) ...
  • Ray Dalio (Net Worth: $16.9 billion) ...
  • Jorge Paul Lemann (Net worth: $15.5 billion)
1 Dec 2021

Can an investment banker make millions? ›

Over the years, investment banks have been under the scanner since it is believed that they make large amounts of money and give out obscene bonuses to their top management while acting unethically. Investment banks are able to make huge sums of money since they have multiple revenue streams.

How much does a VP at Goldman Sachs make? ›

The Goldman Sachs Group, Inc. Jobs by Salary
Job TitleRangeAverage
Operations AnalystRange:$45k - $70kAverage:$56,201
Vice President (VP), FinanceRange:$86k - $168kAverage:$125,447
Vice President (VP), EngineeringRange:$114k - $209kAverage:$155,739
Finance AssociateRange:$59k - $111kAverage:$80,921
3 more rows
30 Aug 2022

What is the average bonus at Goldman Sachs? ›

For 2020, associates at Goldman received average bonuses of £81.7k ($104k) according to search firm Dartmouth Partners, while the market average was £83.4k.

How much does a VP in private equity make? ›

Salary Ranges for Vice President, Private Equities

The salaries of Vice President, Private Equities in the US range from $200,000 to $400,000 , with a median salary of $349,000 . The middle 67% of Vice President, Private Equities makes $349,000, with the top 67% making $400,000.

Is private equity prestigious? ›

Private equity is the tier 1 among finance careers, so there are few exit opportunities more prestigious than private equity.

Who makes more traders or investment bankers? ›

In the short run, bankers make more. abcasdf: In terms of compensation, a good trader makes a LOT more than a good banker for the simple reason that we are getting a % of our PnL and banker pay is pretty much a fixed bureaucratic ladder system.

Is private equity a good career? ›

A career in private equity can be highly rewarding, both financially and personally. Private equity managers often take a great deal of satisfaction from successfully guiding their portfolio companies to new high levels of profitability.

Is consulting better than investment banking? ›

Consultants have better income-per-hour, but the absolute income of consultants is lower than investment bankers. Consulting is more open and offer wide-ranging learning opportunities; investment banking recruits almost exclusively from target finance schools to work in a heavily-financial environment.

Is working in private equity hard? ›

I'll tell you right now, private equity is a pretty hard and busy job. Any deal-oriented job is going to involve intense, short sprints and private equity is no exception. It's not quite at the level of investment banking hours, but you'll still be working a lot.

How much do you make in private equity? ›

For the vast majority of private equity associates, the base salary is around $135k-$155k. Then, based on fund performance, bonuses tend to range from 100% to 150% of the base salary.

Do you have to be smart to work in private equity? ›

Candidates should have an bachelor's degree in an analytical major like finance, accounting, statistics, mathematics, or economics. Private equity fund management requires technical ability to analyze financial performance and estimate the value of a private company.

What are the hours like in private equity? ›

In private equity, you'll work hard, but the hours are not nearly as bad. Generally, the lifestyle is comparable to banking when there is an active deal, but otherwise much more relaxed. You usually get into the office around 9am and may leave between 7pm-9pm depending on what you're working on.

What kind of people work in private equity? ›

The private equity career path attracts people who are: Competitive, high achievers who are willing to work long, grinding hours. Extremely attentive to detail. Interested in deals rather than simply following the markets or investing in public companies or other assets.

Who travels more investment bankers vs consultants? ›

But while bankers stayed in office 90 percent of the time, consultants might travel 25 to 75 percent of their time.

What are the big 4 investment banks? ›

The largest investment banks are noted with the following:
  • JPMorgan Chase.
  • Goldman Sachs.
  • BofA Securities.
  • Morgan Stanley.
  • Citigroup.
  • UBS.
  • Credit Suisse.
  • Deutsche Bank.

Can you move from investment banking to consulting? ›

Yes, you can move from IB to consulting - I helped a few people with the transition. You have two main options: Move after 2 years – you will join as Analyst (McK) / Associate (BCG, Bain). You should be able to negotiate at least 1 year tenure.

Is private equity fun? ›

Similar to a mutual fund or hedge fund, a private equity fund is a pooled investment vehicle where the adviser pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund.

Is CFA necessary for private equity? ›

Otherwise, to be selected by a top-notch private equity firm, you need to have outstanding skills and experience in private equity. Chartered Financial Analyst or CFA – Another qualification you can aim for is CFA. Now, CFA is not for the faint-hearted.

How much does a VP in private equity make? ›

Salary Ranges for Vice President, Private Equities

The salaries of Vice President, Private Equities in the US range from $200,000 to $400,000 , with a median salary of $349,000 . The middle 67% of Vice President, Private Equities makes $349,000, with the top 67% making $400,000.

What is the highest paying job in finance? ›

List of the Best Highest-Paying Jobs in Finance Degree
  • Investment banker.
  • Financial Analyst.
  • Personal Finance Advisor.
  • Financial Manager.
  • Financial Risk Manager.
  • Economist.
  • Private Equity Associate.
  • Hedge Fund Manager.
7 Aug 2022

What is the highest paying occupation? ›

Highest Paying Occupations
OCCUPATION2021 MEDIAN PAY
General internal medicine physiciansThis wage is equal to or greater than $208,000 per year
Family medicine physiciansThis wage is equal to or greater than $208,000 per year
Emergency medicine physiciansThis wage is equal to or greater than $208,000 per year
17 more rows

Is private equity prestigious? ›

Private equity is the tier 1 among finance careers, so there are few exit opportunities more prestigious than private equity.

Videos

1. The 5 BEST Reasons To Go Into Investment Banking (Besides the Money)
(rareliquid)
2. What's NEXT After Investment Banking? | Exit Opportunities EXPLAINED
(Angela)
3. Investment Banking Interview Skills - Course Introduction - Financial Edge
(Financial Edge Training)
4. The Modeler - Course Introduction - Financial Edge
(Financial Edge Training)
5. The FIG Banker - Course Introduction - Financial Edge
(Financial Edge Training)
6. Investment Banking vs. Equity Research vs. Sales & Trading | A Former J.P. Morgan Analyst Explains
(rareliquid)

Top Articles

Latest Posts

Article information

Author: Jeremiah Abshire

Last Updated: 12/10/2022

Views: 6624

Rating: 4.3 / 5 (74 voted)

Reviews: 81% of readers found this page helpful

Author information

Name: Jeremiah Abshire

Birthday: 1993-09-14

Address: Apt. 425 92748 Jannie Centers, Port Nikitaville, VT 82110

Phone: +8096210939894

Job: Lead Healthcare Manager

Hobby: Watching movies, Watching movies, Knapping, LARPing, Coffee roasting, Lacemaking, Gaming

Introduction: My name is Jeremiah Abshire, I am a outstanding, kind, clever, hilarious, curious, hilarious, outstanding person who loves writing and wants to share my knowledge and understanding with you.