Investment Banking vs Private Equity | Which Career to Choose?


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today we are going to discuss a too-tall on investment banking versus private
equity now people who are doing their MBA or who are doing CFA or CA or ICW
what sort of degree you are doing at the end of the day they are now in a dilemma
that where should they go invest in banking or private equity so
my one single question to them all those students what are you passionate about a
one single question so let’s begin on this in investment banking vs private equity there is a huge difference between investment banking and private
equity will bunk the myths here and we’ll try to see you from the different
angles how they are different from each other many people often think that there
is not much difference between investment banking and private equity as
they both deal with raising capital for investing purpose but they’re entirely
different if you give a closer look investment banking is all about finding
businesses and looking for the ways for raising capital from the capital market
whereas private equity is all about finding high net-worth funds and then
finding investment opportunities in other businesses so it seems like that
both are coming from the opposite direction to reach the same goal will
deep deep and seem detail how this two different career paths ultimately
impacted a lot of young professional in meaningful way we’ll talk about
industries conceptual roles what sort of cultures or lifestyles they
offer honorarium and various skills sets required to thrive this this farce
basically now if you wish to gain private equity skills professionally
then you may look at the private equity course that is available okay and you
can have a deep learn a deep understanding regarding the same now
let’s begin an overview on investment banking versus private equity
see as a private equity firm let’s say A is private equity firm and let’s say
B is an investment banking firm I’ll take an example and I’ll work with let’s
say hey is a private equity firm and let’s say B is an investment banking
firm now most of the people who have little or no sense about the domain
would equate the two as similar both of them as similar but there is a
significant difference firm a over here is a collected pool of investors who
come together to invest in a worthy business now how would they do it I mean
they would use their personal funds maybe pension funds collect money from
the insurance companies and wealthy individuals and will invest that lump
sum money in the businesses that they think would generate greater return on
investment for them now let’s talk about from B the firm D is completely
different what form B does is service of capital raising for the business from B
advises clients on different transactions like they they give advises
on M&A they give advises on let’s say asset allocation this is very important
asset allocation then you have restructuring okay then you have raising
different sort of funds like through IPOs and so on and so forth so this are
some of the work so what is the basic industry difference between form a and
form B so the basic difference in form a is an investment business whereas from B
is a capital raising service so over here it’s an investment business this is
capital raising services thus private equity is a lot different than
Investment Banking in investment banking you don’t need to invest anything at
your risk your job as an investment banker is just to faciliate in offer
consulting services but in private equity firm your job is to invest and
not to advise the to this to path base we often intersect in often the
investment bankers need to pitch out is to convince decline to do the deal but
both are different industry and different pathways now let’s look at the
profiles at which they work as we have already mentioned both of these things
are different let’s look at the tasks that you need to perform if you need to
be part of each of this pathway let’s talk about the investment banking first
scene a typical scenario an investment banking analyst has to perform this
primary task so let’s start with IB investment banking has the first one as
analyst okay and it is his primary task is basically performing tasks like
pitchbook creations there financial modeling and some of the administrative
work a pitch book is basically simply means a by sight client presentation so
as an analyst you need to understand the market overview and you also need to
take care of the graphical representation of the possible exchange
ratio other than that you also need to handle multiple deals at the same time
now how would you do that see you will simply prepare the mergers
or any other I mean for model for multiple deals and will look for errors
and bugs because on the basis of your preparation of the model the decision
would be taken you need to be aware of all the scenarios and for that you need
to be able to handle sensitivity analysis at different level so as an
investment banker your administrator task would be a little or not much but
you will need to tweak few things here and there to be able to concentrate on
two main things that is pitch book preparation and modeling on which the
major decisions have been made talking about private equity there are basically
four functions in which private equity associate have to perform on daily basis
they are like fundraising a screening for our and making investments managing
investments and portfolio companies and exists exit strategy
so fundraising is a typically done by the senior professional
and it’s typically basically but often associates are asked to help with
the presentation all they need to do is to find out the past performances and
past investors and what strategy was being used for the funds often
associates need to be to do a credit analysis on the fund itself screening is
very important part of private equity associates take pivotal roles in this
regard they look at all the investment opportunities uses financial models like
discounted cash flows our NPV method to understand whether the investing in this
projects are profitable or not see there is a significant difference in creating
models for private equity associate and investment bankers private equity
associate do it to get to the thick and thin of the things whereas investment
mangers built the model to impress the clients while managing investments and
portfolio companies associate help to turn companies associate help to turn in
or around the operations and try to increase the operational efficiency like
a EBITDA is ROE so they also work in the exit strategy and they need to go in
in-depth analysis in a go private equity associates have to be equipped with all
the tools valuation techniques and financial knowledge to be able to crack
the code for the investment portfolio for the Clan’s
now let’s see the work culture between investment banking and private equity
see if you are looking for a work/life balance then it is better that you
choose any other profession than investment banking investment banking is
certainly not for those who want to be work for 8 hours a day if you are
ready to come at office at 9:00 a.m. in the morning and leave at 2:00 a.m. at
night for most of the days then you can choose Investment Banking it is very
high-pressure job and people need to put their heart and soul into the deal to be
able to fetch them in of course there are two major benefits for working 60-20
twenty hours a day first of all there is no limit on how much you can earn you
can earn as much as you want and you would also get bonuses for each deal
along with the salary secondly you will always get opportunity note the best
people in the business knowing them will help you to crack more
and become the center of attraction in the business world but while discussing
this two major benefits most people don’t talk about one of the major things
in investment bankers often talk about and it is friendship if you ask any
investment banker he would tell you that after this school or college they’re
best friends are they colleagues with whom they cram
all night to fetch a major deal and we think that that’s one of the major
benefit of this high-pressure jobs the private equity associates spend say in a
life then invest banker analyst if things don’t go wrong they don’t always
private equity analysts associate spend close enough to 8 to 12 hours a
day in the offices normally weekends are for them to enjoy and with the personal
hobbies of its family that means if you are a private equity associate you would
have much better work/life balance than an investment banker here sometimes you
need to work in weekends but that is not as much as investment banker needs to do
usually the team is small close enough to 10 to 15 and you have
the opportunity to discuss various matter with people who are senior to you
the environment at the office is kind of a cube environment where everyone needs
to work on a common goal to achieve the desired result in a private equity form
associate have more impact on sales and trading as they are close and taking
actions and investing whereas the investment bankers have less impact on
the sales and trading of the business so in a sense private equity associate
enjoy better work/life balance than any other investment now let’s see the
compensation end who is better in in well whether invested banking or private
equity see if you compare the compensation for both the professions
surprisingly you would see that Investment Banking professional earn
lesser than the private equity associates it is strange that but the
reason private equity associate earns so much is because usually most private
equity associate join private equity firm after being investment bankers for
some time so you can say whatever hard work they already written did in their
career in the past they are getting the benefit now as a private equity
associates let’s look at the compensation of each of the pathways see
as an investment banker if we join right now
get close enough to 130k to 140k for annum I am talking in terms of dollars
and you first here and in the second year you would get around 155 to 165 k
per annum in the 2nd year the increment is visible but not as much as
expected in the 3rd year you can expect around 175 to 195 per K
per annum so the above statistics are for the investment banking analyst but
if we join as an investment associate you are earning your you’re earning
would be much more in the 1st year only then the compensation of the
invested banking analyst in the 1st year your compensation as an investment
banking associate would be around close enough to 150 to 185k per annum now as
a private equity associate your compensation is significantly more but
in firms which are just starting out they don’t pay as much as reputed
private equity firms so in the first year as an associate you would be able
to get around 102 to 20k per annum in the 2nd year you would get around 120
– what – 250 K per annum and in the third year as an associate you would get
around 150 to 300 K per annum let’s see some of the pros and cons in both the
career paths see there are many pros and cons for both of this paths we’ll
discuss them here so that you can get an idea what to pick and what to let go off
as an investment banking the pros are it is a job which prepares you for the
bigger opportunities and makes you the center of the business wherever you go
it teaches you the beauty of the hard work and how one thing focus on can can
yield extraordinary results it offers you extraordinary money you
will not only get the salary very few can earn in this 22 to 3 years you
will earn bonuses which is quite hefty as well you will be able to create
Network that most influential people won’t have and in this complex scenario
of business you know the value of high value networks you will create
extraordinary friendship with your colleagues with whom you will cram all
days and nights to fetch deal after deal most people don’t see as a benefit but
if you meet an investment girl ask him about it
let’s see the cons investment career is not for the faint-hearted you’d need to
work at least 16 hours a day and even on weekends there won’t be any work-life
balance and if you don’t know how to keep yourself sane your health may get
affected investment banking career path is is more about business deal than
going in death of analysis of the morals invested bankers wants to convince the
client with the building models and not to go on in depth of any modeling
investment banking comes down to mainly two things which are not always under
control pitch book presentations and modeling building and model building
this both things are under the direct control of the clients and the invested
bankers use inputs after thinking over what clients want versus what they can
build now let’s look at the private equity pros and cons if you want to be
part of the great team when you would like to facilitate in banking business or
you sorry in making business shine you would be part of private equity team on
the surface it may seem that it is easy to achieve but you need to understand
that if you would like to be an associate in a private equity firm you
need to know a lot more than an investment banker even if you need to go
for in-depth analysis your work-life balance would not be an issue so if
something does not go wrong you would be able to enjoy your weekends and you need
to work simply 10 hours a day in a monetary sense also being a private
equity associate is beneficial you would be paid handsomely at the end of the day
now let’s see what are the cons there is not much disadvantage in being a private
equity associate the only thing is that you need to know a lot more as you need
to build models to go to the depth of the things as you are on
the buy side of the business abate you can you cannot call it as a corn
basically and you will not get as much as limelight as you get in invest in
banking industry now why pursue Investment Banking or private equity
career see Investment Banking is all about getting the limelight and being
the center of the attraction but if you are more interested in business selling
and you should pick Investment Banking after doing an MBA from reputed
university private equity is more about passion as it is more in-house than
going out and stealing the deals so if you love to do analysis in in-depth love
investments then you should go for this but remember most of the people who come
in the private equity business comes after pursuing the career they career in
investment banking so that’s it for this particular topic if you have learned and
enjoyed watching this video please like and comment on this video and subscribe
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