When it comes to pursuing a job in finance, often people talk a lot about two careers: Investment Banking (IB) and Private Equity (PE). When it comes to considering these two careers the main question that arises in everyone's mind is ‘Investment Banking vs Private Equity: What’s the difference?’. While they might sound similar there is a lot of difference between these two terms.
In this blog, you will explore ib vs pe, how much money can one earn, how is the work life balance and a lot of interesting things to know.
What is Investment Banking?
Big companies or startups need funds or want to buy or sell business. Investment Banking also known as private equity banking (PE banking) comes to picture here. Investment banking is about helping businesses raise money and make important deals and thus, investment bankers act as middle men who can help companies or startups for funds or buy or sell business. They advise and arrange deals but they actually don’t own the company.
Main services of Investment banks:
1. Helping companies raise money. They help them sell stocks or issue bonds
2. They advise companies when they buy, sell or merge with other businesses.
3. If a company or business is struggling then investment bankers help them deal with bankruptcy.
4. They advise their clients what their company is worth and also tell them how deals should be cracked.
Job Levels in Investment Banking:
1. Analyst: It’s an entry level job where one has to take care about the Excel models, research, and presentations.
2. Associate: It is an mid-level job where the job is to review analyst’s work and start managing clients
3. Vice President or Managing Director: Senior level job where the focus is on winning clients and closing deals
Investment Banking Analyst NYC:
Many Indians are drawn towards a career as an Investment Banking Analyst in New York. This is popular because of the following reasons:
a. The salary is higher than in India, giving faster growth and wealth-building potential
b. It offers global exposure as New York is home to top banks like JPMorgan, so it has potential for global networking.
c. Help to move into private equity and venture capital, or work in other big cities abroad.
d. Many prefer to study here to avoid tough competition in their home country i.e., India
What is Private Equity?
Private equity (PE) is all about owning companies, improving them and then selling them for profit. Private equity professionals don’t advise others but instead, they themselves invest in business.
How it works:
1. PE firms raise funds by collecting money from pension funds, wealthy individuals, and other investors
2. Private equity firm purchases businesses
3. They help companies grow by cutting cost, changing strategies.
4. After 5 to 7 years, they sell the business at a higher value for profit.
Job Roles:
1. Associate: Someone who works on finding deals, due diligence, and financial modelling
2. Principal/Partner: It is a senior-level job role where the responsibility is to find companies to buy and negotiate deals.
Difference Between Private Equity & Investment Banking:
While they might sound similar, there are lots of differences between these two terms. Following is all about pe vs ib
A) Private Equity (PE):
1. Main Role: Buy and manage the companies directly
2. Clients: Investors who invest in the private equity firm and portfolio companies
3. Working Hours: Can be approx 40-70 hours per week
4. Pay: Higher long term pay because of profit sharing
5. Required Skills: Negotiation, business strategy and management.
6. Exit Options: Portfolio company leadership, fund management and many more.
B) Investment Banking (IB)
1. Main Role: To advise companies on making deals and raising funds or money
2. Clients: Governments, Institutions, Corporations
3. Working Hours: Can be approx 80-100 hours per week
4. Pay: High salary and yearly bonuses
5. Required Skills: Pitching, Deal making, Financial Modeling
6. Exit Options: Corporate Finance, Consulting and many more.
Investment Banking (IB) vs Private Equity (PE) vs Venture Capital (VC):
Investment banking, pc vc, these are often considered as related terms. Venture capital is actually a type of private equity but it focuses more on early startups. Let’s take a look at at the definitions of all the three terms to understand what exactly is the difference in them
1. Investment Banking (IB): It helps companies with deals and raising capitals
2. Private Equity (PE): It buys companies, improves them and then sells them.
3. Venture Capital (VC): It invests in those startups which are young and risky but has high growth potential.
The above definitions will help in your basic understanding of what is the difference between investment banking, private equity and venture capital.
FAQ’s
1. What is the difference between investment banking and private equity?
Ans: Investment banking helps businesses raise money and advise them on deals. Private equity buys companies, improves them and later sells them at profit.
2. What is private equity in financial services?
Ans: Private equity in financial services means investment firms buys and grows businesses banks, fintechs etc. to increase their value and increase profit.
3. Which is harder, investment banking or private equity?
Ans: Investment banking jobs have long working hours but private equity can be stressful since you own the company and the success depends on you
4. Do you need investment banking experience for private equity?
Ans: Usually it is a yes as most private equity firms hire investment banking analysts
5. Which is better, investment banking (IB) or private equity(PE)?
Ans: It depends. If you are someone who likes closing deals quickly, then IB can be a career for you, but if you love owning businesses and thinking with a long-term perspective, then PE can be a career for you.