To Wall Street outsiders, the differences between investment banking and private equity may be all but meaningless. But even to those who are professionals within the financial field, the differences may prove elusive.
The key thing that distinguishes investment banking from private equity is that the former is concerned primarily with raising capital while the latter is focused on investing.
Ground-level differences for employees
Many people are concerned with what the day-to-day activities of an analyst-level employee at an investment bank versus a private equity firm entail. Some are surprised to learn that private equity, which often carries more mystique and is associated with higher status, is often the grittier and down-to-earth profession.
Being chiefly concerned with sales, investment banks put a lot of time and thought into the presentation aspects of what they do. Investment banking is fundamentally centered around the sales pitch because raising money and doing deals is the core business activity of that industry. By contrast, private equity firms are usually far more interested in actually finding great investments. For private equity firms, the only real sales activities typically take place at the most senior levels when large private investors are being approached to park some of their money with the firm.
This difference can appear quite strikingly at the analyst level. Much of an investment bank analyst’s day consists of working on pitchbooks, modeling and administrative work. Many of these same tasks are also part of working at a private equity firm. But there, the focus tends to be far more on the gritty details of investments. Because private equity has skin in the game, the center of modeling is less about creating impressive graphics and interfaces and far more about due diligence and finding any potential flaws in the operations of potential acquisitions.
In short, a private equity analyst can expect to do a lot of number crunching in the pursuit of value. While investment banking analysts often have their time occupied with the creation of dazzling charts and other visuals for presentation at meetings, investment banking analysts can expect to spend far more time analyzing and vetting potential investment opportunities.
All said, many people coming from investment banking are often surprised to find just how mundane and drudgery-filled the private equity scene is. But the paychecks often make it well worth the effort.