As the two fields of Investment Banking and Private Equity both, deal with raising capital for all sorts of investment purposes, they are often mistaken to be very similar. That is not really the case, when the intricacies of both of these fields are closely examined. On one hand, Investment Banking deals with looking for various ways to expand the businesses, in order to raise capital from the capital market, on the other hand, Private Equity is focused on looking for high net worth funds, after which is focuses on looking out for investment opportunities in other businesses. While both of these fields have a similar goal, the path chosen to reach the same is extremely different.
To further differentiate the two fields, lets take the help of an example. For instance a private equity firm, is more like a collected pool of investors, all of whom come together in order to invest in worthy businesses. Now exactly what kind of funds, would these investors be using? They would use resources like their pension funds, personal funds or money collected from insurance companies and wealthy individuals. A private equity firm is responsible for investing all these funds, in such a way that these individuals get greater return on their respective investments. This is all that a private equity firm is all about. Now, lets move ahead to an Investment Banking firm, which is a service of raising capital for all sorts of businesses. These firms usually act as advisories to all their clients and are responsible for giving them, the proper advise about various financial transactions like mergers and acquisitions, asset allocation, restructuring or any other capital raising service.
The basic difference among the two, is that a private equity firm is simply put, an investment business, whereas an investment banking firm, basically provides capital raising services. When it comes to professionals in both of these fields, the job of an Investment Banker is very advisory in nature, which means that they don’t actually invest the money, rather guide their clients towards which kind of investment would be the right one for them. Whereas in terms of Private Equity, a professional will be expected to invest a client’s money, on their behalf and not to just advice.
In terms of their roles, an Investment Banker, is supposedly involved in various tasks like, pitch book creation, financial modeling, administrative work and so on. An Investment Banker is expected to thoroughly know the market and the various things that affect it. They are also supposed to draw up models for every kind of deal and try and fix the bugs within them, if any. On the other hand, a Private Equity analyst would be responsible for performing functions like, fund-raising, screening for and making investments, managing investments and portfolio companies and exit strategy. Both of these fields are known to award professionals, handsomely, which is why a number of aspirants want to make a career, herein. While a graduate degree would be just enough, these days due to the enormous amounts of competition, there are a majority of people, who opt for specialization courses, offered by institutes like Imarticus Learning, which allow them get an edge over their contemporaries.