Investment banking and private equity are two lucrative career paths in finance, but they differ significantly in their day-to-day roles and responsibilities. As a recent graduate or young professional, you may be debating between pursuing investment banking or private equity. This article will compare the key differences between the two fields to help you determine which is the better fit for your skills, interests and career goals.
Overview of Investment Banking
Investment banks help companies raise capital through debt and equity financing, and provide advisory services on transactions like mergers, acquisitions, and restructuring. As an investment banking analyst or associate, you will work on teams to pitch and execute deals. The typical work includes financial modeling, preparing pitchbooks and presentations, conducting due diligence, negotiating transaction terms, and coordinating closing documentation.
Investment banking teams work long hours, often 70-100+ hours per week during busy deal periods. The work itself can be repetitive and tedious at times, focused on formatting slides and spreadsheets However, you gain broad exposure to different industries and types of deals The fast-paced, high-pressure environment also develops core skills in finance, valuation, accounting, and client management.
The typical career path is 2-3 years as an analyst, 3-4 years as an associate, then promotion to vice president and managing director levels The large banks offer strong training programs, brand name prestige, and expansive alumni networks. The compensation is also quite high, with analysts earning $150K+ and associates earning $250K+ in total compensation
Overview of Private Equity
Private equity firms invest capital to acquire companies, improve operations, and sell at a profit. As a private equity professional, you will be involved in evaluating investments, executing deals, managing portfolio companies, and facilitating exits. The work requires creativity in spotting investment opportunities, strategic thinking to add value, and relationship management skills.
The hours tend to be less intensive than investment banking, around 55-65 hours per week on average. Deal flow is sporadic, leading to some slower periods. However, hours ramp up dramatically during active deal periods. The work itself involves more critical analysis of companies as investments, rather than pure focus on deal execution processes.
The career path typically starts as an analyst for 2-3 years, promotion to associate for 3-5 years, then to vice president, principal and partner levels. The ceiling for earnings is extremely high, driven by carried interest from successful deals. However, analysts tend to earn less than in investment banking. The brand names of top private equity firms also hold less weight outside of finance.
Key Differences Between Investment Banking and Private Equity
Work Content
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Investment Banking: Pitching, executing deals, managing processes, formatting presentations. More repetitive tasks.
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Private Equity Evaluating investments, managing portfolio companies, executing deals. More critical thinking.
Hours
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Investment Banking: 70-100+ hours per week during deals. Consistently high hours.
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Private Equity: 55-65 average, with spikes during deals. More variability.
Career Progression
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Investment Banking: Analyst – Associate – VP – MD typical path. Faster promotions.
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Private Equity: Analyst – Associate – VP – Principal – Partner typical path. Slower pace.
Compensation
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Investment Banking: Higher base salaries, bonuses, especially at junior levels.
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Private Equity: Lower at junior levels, but unlimited upside at senior levels from carry.
Brand Power
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Investment Banking: Prestige and alumni network of large banks.
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Private Equity: Less well-known brand names outside of finance.
Exit Opportunities
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Investment Banking: Broad options in finance, business, tech.
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Private Equity: Narrower options centered in investing roles.
Which Career Path is Right For You?
Choosing between investment banking and private equity depends largely on your skills, interests and preferred work style.
Consider Investment Banking If:
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You enjoy fast-paced, high-pressure environments with frequent tight deadlines.
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You are extremely detail-oriented and don’t mind repetitive spreadsheet work.
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You want broad exposure to different industries and transaction types.
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You value prestigious brand names and large professional networks.
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You may want to transition into business roles like corporate development.
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You prefer set, structured two-year analyst programs with continuous deal flow.
Consider Private Equity If:
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You prefer evaluating companies from an investor perspective over managing deal processes.
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You are comfortable with less structure, variability in deals, and some slower periods.
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You enjoy strategically thinking about how to improve businesses.
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You plan to stay in investing roles long-term rather than business roles.
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You are willing to sacrifice short-term earnings for higher long-term upside.
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You want the option to transition into growth equity or venture capital.
Getting Your Foot in the Door
The recruiting timelines and interview preparations differ for the two paths:
Investment Banking
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Extremely structured process with internship recruitment 1-1.5 years before start date.
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Requires deep preparation for technical questions and accounting/modeling tests.
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Investment banking-specific training programs from sites like Wall Street Oasis are essential.
Private Equity
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Less structured process, with some firms offering internships only months before start date.
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Still requires technical preparation, but interviews focus more on deal judgment and market awareness.
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General finance training plus reading industry news will sufficiently prepare you.
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Monitoring Portfolio Companies and Operating Performance
Frequently managed by a dedicated operations team, certain private equity associates – especially those with management consulting experience – may assist the team in helping portfolio companies revamp operations and increase operating efficiency (EBITDA margins, ROE, cost-cutting).
The amount of interaction a PE associate receives in the process purely depends on the specific fund and its investment strategy.
There are also certain PE funds that have associates dedicated to just this part of the deal process.
The planning of exit strategies involves both the junior team (including associates) and senior management.
Specifically, associates screen for potential buyers, and build analyses to compare exit strategies Again, this process is modeling-heavy and requires in-depth analysis.
Investment Banking vs. Private Equity: Differences in Lifestyle?
Typically, 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.
You may work some weekends (or part of a weekend) depending on if you are on an active deal, but on average, weekends are your own personal time.
There are certain PE shops that have taken a “Google” approach and offer free food, toys in the office, televisions in offices, and sometimes even beer in the fridge or a keg in the office. Other PE firms are run more like traditional, conservative corporations where you are in a cube environment.
PE firms tend to be smaller in nature (there are exceptions), so your entire fund may be only 15 people. As an Associate, you will have interaction with everyone, including the most senior partners.
Unlike at many of the bulge bracket investment banks, senior management will know your name and what you are working on.
In addition, private equity is a bit closer to sales & trading in the sense that there is a culture of performance. In banking, analysts and associates have virtually no impact on whether a deal closes or not, while PE associates are a little closer to the action.
Many PE associates feel like they are directly contributing to the fund’s performance.
That feeling is almost completely absent from banking. PE associates know that a large part of their compensation is a function of how well these investments do, and have a vested interest in focusing on how to extract the maximum value from all portfolio companies.
What’s the difference between investment banking and private equity?
What is the difference between private equity and investment banking?
Private equity and investment banking both help businesses find, develop and grow capital, but each does it in a different way. A private equity firm buys assets itself, looking to grow those assets and profit off of each down the line when they are sold. An investment bank primarily sells assets for another party.
What are private equity funds?
Private equity funds refer to the investment funds that pool the funds from different investors with high net worth to acquire the stakes in various entities. There is a huge difference between investment banking and private equity. We will bunk the myths here and see how they differ from each other from different angles.
What is the difference between a hedge fund and a private equity firm?
In most cases, hedge funds invest in a broad spectrum of assets while private equity firms focus on acquiring and developing businesses. In all cases, the business model of a private equity firm is as a buyer. They purchase assets, typically companies.
Why do investment bankers want to work in private equity?
Overall, investment bankers want to work in private equity for the following reasons: its benefits in the long run, greater control over investment decisions, and better professional and entrepreneurial opportunities. Also, compensation tends to be higher in private equity firms. Do You Need to Do Investment Banking Before Private Equity?
