Investment Banking vs. Private Equity: Key Differences

Private equity firms collect high-net-worth funds and look for investments in other businesses. Investment banks find businesses and then go into the capital markets looking for ways to raise money from the investment crowd.

Investment banking vs private equity

What is private equity?

Private equity is essentially an investment business. Private equity firms are made up of investors who invest in privately held companies with money from a variety of sources. Additionally, these businesses might band together to buy the majority of the shares of a publicly traded company, which they would then delist from the stock exchange. Private equity firms have an investment business model as opposed to an advisory one because they are self-funded.

Associates at private equity firms have three main duties:


While some private equity firms rely on their own funds to operate, others look for funding from sources like wealthy individuals or pension funds. Associates present a workable plan to investors while acting professionally when raising money. Associates also provide updates on the money from external investors.

Making investments and analyzing companies

Making investments makes up the majority of an associate’s work at a private equity firm. However, it is the associate’s responsibility to conduct all necessary research prior to investments. This process requires investigation and interviews. It is crucial to ensure the quality of any company in which the company invests because doing so gives the company more security and confidence when making investments.

Developing exit strategies

Another aspect of an associate’s job description is knowing when to withdraw funds from an investment. Private equity firms plan when they will consider an investment in a company successful and withdraw their capital before making the investment. After the investment has increased to the point where the company considers it successful, firms take this action. A company’s exit strategy also aids in determining when to sell shares of a losing investment.

What is investment banking?

Investment banking is an advisory service. Investment bankers collaborate with clients to plan restructuring, coordinate acquisitions, and structure mergers. Other companies, governments, and other entities like private individuals are typical clients of investment banking firms. Investment bankers compete for client business as a capital-raising and advisory firm. Investment bankers typically do not operate with their own money. Instead, they help their clients by offering guidance.

Investment banks typically hire associates who have recently earned an MBA or who have been promoted from the analyst position after some time in that position. They typically have three main duties within their job description:

Pitch book creation

Pitch book creation refers to creating materials for client presentations. To demonstrate to clients how the bank would manage their money, associates create demonstrations. The goal of pitch books, which can take on a variety of forms, is to convince a client to work with the investment bank.


Models of potential transactions are also created by associates at an investment bank. It’s crucial to make decisions about specifics in advance when organizing business ventures like a merger. By creating a visual representation of a transaction before it takes place, modeling enables associates to spot and address any problems before moving forward with the transaction.

Administrative work

Administrative duties are the general responsibilities that an associate has on a daily basis. The creation of pitch books and business modeling take up more time for associates, but administrative work is crucial because it includes tasks like locating transaction partners and interacting with clients. Since associates frequently work independently, they handle any administrative tasks that may arise throughout a deal themselves rather than assigning them to another worker.

Difference between investment banking and private equity

Although the skills required for work in investment banking and private equity are similar, there are some significant differences between the two industries’ operations. Here are some ways that the two are different:


Investment bankers refrain from investing their own money in the transactions of their companies. Instead, they advise clients on the best ways to invest their money. However, employees of private equity firms frequently use their own private funds. Due to this distinction, investment bankers’ primary concern is making money for their clients, while private equity firms’ primary concern is making money for the company.


Clients are given information by investment bankers in a way that makes the deal seem appealing. These presentations require extensive research to prepare, but their main objective is to persuade the client to seize the opportunity.

Employees at a private equity firm look for investment opportunities that will benefit themselves since they don’t have an external client. Due to this distinction, private equity firms use a strategy that centers on thorough investigation into how the business would allocate the capital investment.

Work environment

Employees in both a private equity firm and an investment bank must be motivated to put in a lot of effort. However, because these workers spend more time at the office and possibly work more weekends, an investment bank is typically a busier work environment. Although they also spend a lot of time at work, private equity employees typically have more flexible schedules because they are pursuing their own interests. Because of this, the private equity industry has a higher prevalence of flexible work schedules.

Due to the fact that investment bankers typically work in teams for set hours each week, they frequently get to know their coworkers well and form bonds that last long after their time spent working together.

Job outlook for investment bankers

Job outlook for private equity firms

Tips for choosing between working for an investment bank or private equity firm

Here are some suggestions to help you choose which career path may be best for you if you’re thinking about a career in finance:

Decide how you want to balance your work and personal life

Investment bankers work long hours, but because of the time they spend together, they frequently become close with their team. Additionally, they frequently interact with clients, making the job potentially social

Private equity associates frequently work fewer hours, which frees up more time for personal interests and family time. Going into private equity may be more appealing than working in investment banking if maintaining a balance between work and social life is important to you. However, it’s crucial to keep in mind that a lot of private equity professionals start out in investment banking, so you might spend some time there before switching to the private equity industry.

Consider your preferred payment method

Investment bankers typically receive a base salary along with additional bonuses, so the success of their investments isn’t the only source of their primary income. However, the earnings of private equity partners are directly correlated with the performance of their investments. Investment banking might be a good choice for you if you prefer a steady, dependable income. Private equity may be a better fit for you if you don’t mind taking risks in exchange for the potential for high earnings.


What pays more private equity or investment banking?

The bottom line is that, yes, private equity has a higher pay ceiling and that some MDs and Partners make hundreds of times as much as MDs in the banking industry.

Is private equity harder than investment banking?

Even though private equity requires a lot of work, the hours are not nearly as long. When a deal is active, the lifestyle is typically similar to that of banking, but it is generally much more laid back. However, there are benefits besides money and job prospects.

Is private equity less hours than investment banking?

In private equity, the risk of making mistakes is much greater. As an associate, I would estimate that the typical workweek in private equity is between 60 and 65 hours. This is a significant improvement over investment banking by about 10 to 15 hours.

Which is better equity research or investment banking?

Equity research and investment banking both have good salaries, but over time, investment banking becomes a much more lucrative career option.

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