Private equity and investment banking offer lucrative and prestigious career opportunities and high compensation. But still, there are considerable differences between the two career paths. Investment banker provides advice and assistance in raising investment, while the private equity industry is involved in making investments. However, private equity is perceived as an exit opportunity for investment bankers.
Both sectors demand top talent and need strong business, financial acumen, and numerical and soft skills to thrive in their career. Investment banking and private equity career ask for long hours to work. Investment bankers must work at least 80 hours a week or more. While on the other side, private equity professionals have a better work-life balance, but long working hours may be needed in the execution stage of dealing.
In this blog, we dig deep and evaluate how these two career paths impact young professionals and why people choose a private equity career over investment banking.
What is Investment Banking?
It is a division of banks and financial institutions which serves governments, institutions, and enterprises by offering underwriting, merger, and acquisition services. Investment bankers act as intermediaries between investors and corporations, enabling them to sell their business interests to investors.
What is Private Equity?
It is a type of private capital investment primarily related to owning capital or shares not listed or traded in the public portal. Generally, it is established through private equity firms and deals with buyouts of or investments in companies. Private equity companies are the most robust and influential players in the financial market and various investors are clamoring for private equity investment opportunities.
Difference between Private Equity and Investment Banking
Both careers have differences; let’s look at them and determine what tasks you need to perform on these paths.
- Working Hours
Work and lifestyle balance is different when comparing investment banking and private equity. Thus, in terms of working hours, investment bankers usually require working 60 to 80 hours a week. However, depending on factors like resources, deal closing, and workload in private equity, they must work 40 to 60 hours a week and rarely work on weekends.
- Compensation
Investment bankers receive the amount in two parts, i.e., salary and bonus. However, most of the money earned by investment bankers is from bonuses, and this bonus will increase drastically as you grow in your career. The bonus element is a function of both individual and group performance.
On the other compensation in, a private equity career is not defined as investment banking. PE salary usually includes base and bonuses like investment bankers’ compensation. The basic pay is on par with investment banking.
- Education and Skills
Investment banking and private equity seek professionals with high numerical, intellectual, and soft skills. However, a bachelor’s degree is a prerequisite for an analyst’s role, but some analysts graduate with a master’s in finance or a master’s in Business Administration. Also, both careers need specific skill sets like financial modeling, statement analysis, and market sales knowledge.
- Exit Opportunities
Unsurprisingly, both careers require high intellectual ability and only recruit top talent (usually from Ivy League schools). Investment banking expertise is used in other areas, such as asset management, venture capital, and hedge funds. Private equity can offer a better work-life balance but it is also harder to get into. PE offers similar opportunities as investment banking to move into hedge funds, venture capitalism, asset management, or other senior finance roles.
Pros and Cons of Private Equity vs. Investment Banking
This career has pros and cons, so let’s get a quick overview.
Investment Banking
Pros
- This is a career that will prepare you for more significant opportunities and make you the center of business wherever you are.
- You can earn much money. It offers a salary that only some people can achieve in two to three years. You’ll also get a generous bonus.
- You can create a network of influencers that others cannot. In this complex business situation, you understand the importance of a high-value network.
- You will form an incredible network with your co-workers, with whom you’ll spend all day and night getting deal after deal. Many people don’t see this as a benefit, but if you ever meet an investment banker, ask him about it.
Cons
- Investment banking is not for the weak-hearted. Even on weekends, you must work a minimum of 16 hours. There would be no work-life balance, and your health could suffer if you don’t know how to stay sane.
- Investment banking careers are more about the business than a detailed analysis of models. An investment banker will want to convince clients to avoid going into the depths of modeling.
- The two main aspects of investment banking that are often not under control are pitch book presentations and model building. The client controls both items, but the investment bankers consider what the client wants versus what the bank can build.
Private Equity
- Being a certified equity professional is advantageous in a monetary sense. You will get paid handsomely for your efforts.
- You would join a team of private equity professionals if you wanted to be a part of a fantastic team that helped businesses succeeds. It may appear easy, but if you’re going to become an associate at a private equity company, you must have more knowledge than investment banking professional.
- Work-life balance is not an issue, even if you have to do an in-depth study. You can enjoy your weekends if nothing goes wrong.
Cons
- There are a few disadvantages to being a private equity affiliate. You will need to learn a lot as you build the models. This is because you will be on the buying side of the business. You can’t call it a scam, but you should not ignore it.
- The investment banking industry is less glamorous than the other industries.
| Read more on private equity industry here
Conclusion
Both careers are financially rewarding and highly regarded, but the choice is yours. Investment banking can be glamorous but also demands long hours and sacrifices to your personal life. Private equity is a very prestigious career. Private equity offers a better work-life balance. It is the preferred career for experienced investment bankers.