In 2025, slowed M&A activity has made investment banking hiring more selective, while private equity firms are accelerating recruitment for graduates. Business schools are responding by offering advanced training in AI, data science, and technical finance skills to meet growing demand.
These shifts make it even more important to understand the difference between investment banking and private equity before choosing a career path. While both fields involve financial analysis, deal-making, and strategic thinking, the day-to-day roles and compensation structures vary significantly.
This article compares private equity vs investment banking and highlights key differences in roles, responsibilities, compensation, required skills, and career trajectories.
What is investment banking?
Investment banking is a sector within the financial services industry that primarily provides advisory and capital-raising services to corporations, institutional clients, and governments.
Investment bankers act as intermediaries that facilitate large and complex financial transactions such as mergers and acquisitions (M&A), initial public offerings (IPOs), and bond issuance.
Investment banks support clients through three principal functions:
Investment bankers advise buyers or sellers in M&A transactions, helping with valuation, negotiation, and deal structuring to achieve optimal transaction terms.
Investment bankers facilitate the issuance and sale of securities (equity and debt) to investors, including IPOs, bond offerings, and private placements, ensuring appropriate pricing and compliance with regulations.
Investment bankers serve as intermediaries between clients needing capital and investors looking for investment opportunities, utilizing extensive networks and market expertise.
Investment banking focuses on providing a reliable, transparent ecosystem to help protect the interests of all parties, ensure accurate financial disclosure, and maintain confidentiality throughout transaction processes.
What is private equity?
Private equity (PE) is a type of investment business in which firms raise money from private investors, institutional investors, or high-net-worth individuals to invest in private companies or take public companies private.
Unlike investment banks, which mainly advise and facilitate deals, private equity firms typically directly invest in companies to improve their operations, growing their value, and ultimately achieving profitable exit strategies.
The PE business model works in several key steps.
- Raising capital
Private equity firms create funds and gather commitments from potential investors, pooling their own money with outside capital.
- Investing in companies
The firm identifies potential investments, conducts detailed due diligence, and acquires ownership stakes in private companies.
- Value creation
Private equity professionals actively work with portfolio companies to improve management, operations, and strategic positioning.
- Exit strategies
After a growth period, many private equity firms sell or take companies public, sharing profits (or losses) with their investors.
Private equity professionals focus on long-term value creation, operational improvements, and strategic growth, whereas investment bankers primarily focus on structuring and advising on transactions in capital markets.
Private equity requires a deep understanding of potential investments, risk management, and active involvement in company management, making it distinct from the advisory-driven role of investment bankers.
Check out our article on growth equity vs private equity to learn how these investment strategies differ, the types of companies they target, and what skills are needed to succeed in each. Likewise, explore our guide to private equity books.
Investment banking vs private equity: Key differences
The table below highlights the key differences between the two fields.
| Aspect | Private equity | Investment banking |
|---|---|---|
| Primary focus | Directly invests in private companies or takes public companies private to increase their value. | Provides advisory services to companies and governments on raising capital, mergers, acquisitions, and restructuring. |
| Role of professionals | Private equity professionals source and evaluate potential investments and work hands-on with portfolio companies to improve performance. | Investment bankers structure transactions, perform valuations, prepare pitch books, and act as intermediaries between clients and capital markets. |
| Time horizon | Long-term. Investments are typically held for 3–7 years (sometimes longer) until an exit strategy, such as a sale or IPO, is executed. | Short-term. Focused on closing deals, raising capital, or advising on transactions that may last weeks to months. |
| Ownership | Takes a controlling interest or significant ownership stakes in companies, often with decision-making power over strategy and operations. | Does not take ownership. Instead, facilitates deals and provides financial expertise to clients. |
| Capital | Raises funds from private investors, institutional investors, pension funds, or its firm’s own money. Invests pooled capital into companies. | Helps clients access capital markets by underwriting new debt and equity securities and connecting them with potential investors. |
| Value creation | Increases company value through operational improvements, cost restructuring, management changes, strategic growth initiatives, and expansion into new markets. | Creates value by structuring complex financial transactions, advising on market timing, and ensuring clients maximize proceeds or minimize costs in deals. |
| Types of deals | Leveraged buyouts (LBOs), growth equity investments, venture capital-style deals, distressed buyouts, and add-on acquisitions for portfolio companies. | Secondary offerings, IPOs, M&A, leveraged finance, restructurings, and advisory mandates. |
| Clients | Portfolio companies (owned by the PE firm), limited partners (the investors in private equity funds). | Corporations, governments, private firms, and publicly traded companies seeking capital or strategic advisory services. |
| Exit opportunities | An essential part of the model. Exits may include selling the company to another buyer, taking it public through an IPO, or merging it with another portfolio company. | No direct exit strategy. Bankers advise on transactions but do not stay involved once the deal closes. |
| Risk profile | Higher financial risks due to direct ownership, use of leverage, and reliance on improving company performance. Rewards can also be much higher. | Lower direct risk since bankers do not invest their own firm’s capital into deals (except for reputation risk). Advisory and transaction fees generate revenue. |
Read our article on M&A and private equity to learn how mergers and acquisitions intersect with private equity investments, the key strategies involved, and what skills are essential for success in both areas.
Career paths in investment banking
Investment banking careers follow a well-defined hierarchy, where professionals move from analytical and technical roles toward leadership and client-driven responsibilities. Each stage comes with greater responsibility, greater client exposure, and a shift from execution to strategy:
- Analyst (0–2/3 years)
This entry-level role is usually for recent graduates. Analysts build financial models, prepare pitch books and presentations, perform company and industry research, and support deal execution. Their work is highly technical and detail-oriented, requiring long hours and precision. Most analysts remain in this role for two to three years before being promoted or moving into private equity, hedge funds, or corporate finance roles.
- Associate (3–5 years)
Individuals are often promoted from analyst or recruited directly after an MBA. Associates manage analysts, review their work, and act as the link between junior staff and senior bankers. They participate in client communication, lead portions of due diligence, and contribute more actively to structuring deals.
- Vice president (VP) (5–7 years)
Vice presidents oversee deal teams, coordinate with clients, and ensure transactions run smoothly. They bridge execution and relationship management, training junior bankers while maintaining direct involvement in deal negotiations.
- Director/Executive director (7–10 years)
At this stage, the focus shifts heavily to business development. Directors source new deals, expand the firm’s client base, and manage multiple transaction teams. They begin to build the personal client relationships necessary to advance to managing director.
- Managing director (MD) (10+ years)
This is the highest rank in investment banking. Managing directors focus almost entirely on winning new deals, maintaining long-term client relationships, and driving revenue growth for the bank. They set strategic priorities, represent the bank at the highest levels, and ensure profitability.
This progression makes investment banking a demanding but highly structured career path. Professionals begin with technical, detail-oriented responsibilities and gradually transition into leadership, client management, and revenue generation, with compensation and influence rising significantly at each level.
Career paths in private equity
Private equity offers a highly structured yet competitive career trajectory, typically recruiting professionals with backgrounds in investment banking, consulting, or similar fields. The path provides intensive exposure to deal execution and operational value creation, with roles that advance from analytical foundations to leadership in fundraising and firm strategy.
The typical progression in private equity is similar to the following:
- Analyst
Entry-level role (0–2 years), often filled by recent graduates or those with 1–2 years of IB experience. Responsibilities include financial modeling, market research, and supporting due diligence.
- Associate
(2–4 years of experience) Leads parts of deal execution, including valuations, investment memos, and managing communication with management teams.
- Senior associate
(4–6 years) Takes ownership of due diligence, helps develop investment strategies, and may attend board meetings while mentoring junior staff.
- Vice president (VP)
(5–8 years) Oversees deal execution end-to-end, presents recommendations to investment committees, and develops relationships with limited partners (LPs).
- Principal/Director
(7–10+ years) Focuses on sourcing and originating deals, leading negotiations, and guiding strategic initiatives at portfolio companies.
- Managing director (MD)/Partner
(10+ years) At the top of the hierarchy, these leaders set firm strategy, drive fundraising, manage investor relations, and oversee overall portfolio performance, earning significant compensation, especially from carried interest.
Each stage comes with rising responsibility, longer-term involvement in portfolio operations, and a compensation structure that often includes significant performance-based rewards such as carried interest.
Why is IB experience often a prerequisite?
Investment banking serves as the most common feeder pathway into private equity. Investment banking analysts bring essential deal execution expertise, financial modeling proficiency, and a strong work ethic — qualities PE firms value greatly. Firms favor these candidates because they “hit the ground running,” with minimal training required. As one PE insider on an industry forum put it:
I’d say of my colleagues in private equity, 85% of them worked in investment banking before private equity.
Alternative entry routes, such as consulting or MBA transitions, exist, but IB remains the dominant and most direct source of PE talent due to its rigorous training and operational focus.
For a detailed breakdown of roles, progression, and how to break into the finance industry, read our article on the private equity career path.
Compensation: Private equity versus investment banking
Compensation in IB vs PE differs significantly depending on role, seniority, firm size, and deal performance. The table below provides an overview of typical salaries, bonuses, and long-term earning potential in both industries.
| Aspect | Private equity | Investment banking |
|---|---|---|
| Base salary | 1st-year analyst: ~$95–$100k 3rd-year analyst: ~$200k Associate: $250–$400k VP: $450–$700k MD: high six-figure to low seven-figure | Analyst: ~$70–$120k Associate: $150–$300k (varies by firm size) VP/principal: $250–500k + carry MD/partner: $500k–$1 million or more + significant carry |
| Bonus structure | Analysts & associates: 50%–100% of base VP & MD: varies, often significant | Junior: small bonus Senior (VP/principal/MD): bonus + carried interest Carry can multiply total compensation many times. |
| Junior-to-mid-level pay | Analysts and associates earn solid upfront compensation. | Analysts may earn less than IB analysts. Private equity associates at mega-funds earn more, but mid-market firms pay less. |
| Long-term upside | Limited to salary and bonus growth | High upside through carried interest. A top-performing MD/partner can earn multiples of banking peers. |
| Promotion & career path | Structured. Promotions are more frequent. | Harder to move up. Long-term incentives encourage staying with the company. |
Insight: Bank of America expects investment banking fees to rise 10%–15% in Q3 of 2025, with trading revenue growing slightly for the 14th straight quarter.
Check out our in-depth article on private equity salary to see typical pay ranges, bonuses, and long-term earning potential across different roles and seniority levels.
Skills needed for success
When comparing PE vs IB, success depends on a mix of skills shared by both fields as well as those unique to each career path:
The following skills are essential in both IB and PE roles:
- Financial modeling and valuation
Firms look for the ability to build complex models, perform DCF, LBO, and comparable company analyses.
- Analytical thinking
Recruiters expect strong quantitative and qualitative analysis to evaluate transactions and investments.
- Attention to detail
This helps to ensure accuracy in financial reports, presentations, and transaction documents.
- Client management and communication
These roles require candidates to present findings clearly, maintain relationships, and collaborate effectively with teams and clients.
- Problem-solving
Key characteristics include identifying issues and proposing actionable solutions under tight deadlines.
Private equity roles require additional competencies due to the focus on long-term investments and portfolio management.
- Strategic thinking
Private equity professionals must possess the ability to assess business potential, market trends, and competitive positioning.
- Operational expertise
The PE sector insists that candidates have the skills to evaluate operational improvements, cost structures, and growth opportunities within portfolio companies.
- Deal sourcing and negotiation
Longevity in PE requires that professionals can identify attractive investment opportunities and negotiate favorable terms.
- Portfolio management
Managing portfolios demands that teams work together closely to create value over time.
- Long-term perspective
Possessing the proper outlook means understanding that investment outcomes may take years, requiring patience and judgment.
While some traits overlap with PE, IB emphasizes the following qualities:
- Transaction execution
Candidates must manage complex deals under tight deadlines.
- Industry knowledge
Financial professionals must understand sector dynamics to advise clients effectively.
- Presentation skills
A non-negotiable talent for IB analysts is the ability to successfully prepare client-facing pitchbooks and proposals.
- Networking
Longevity in the world of high finance relies on building and leveraging relationships to win deals and maintain client trust.
Which career path is right for you?
Choosing between investment banking and private equity depends on your personal preferences, career goals, and working style. Start by evaluating what motivates you: if you thrive in fast-paced environments, enjoy working on high-pressure transactions, and like the idea of advising multiple clients across industries, investment banking may be a better fit. Banking is often suited to individuals who are highly analytical, competitive, and eager to develop broad financial and deal-making skills quickly.
Private equity, on the other hand, appeals to those who are interested in long-term value creation, strategic decision-making, and operational involvement with portfolio companies. Private equity professionals need patience, strong business judgment, and a strategic mindset. Financial professionals who enjoy in-depth company assessments, improving operations, and taking ownership of long-term investments may find private equity more rewarding.
In short, investment banking better suits ambitious professionals seeking rapid exposure to transactions and client advisory, whereas private equity is ideal for those seeking strategic, long-term involvement and higher upside potential through carry and value creation.
Helpful resource: Are you interested in starting a career in private equity? Do you want to learn how to determine the best opportunities? Check out our articles on top private equity recruiting firms and private equity internships to discover leading firms, find the best internship opportunities, and learn how to position yourself for long-term success in the industry.
Key takeaways
- Role and focus differ. Investment banking primarily advises clients on transactions, capital raising, and M&A, while private equity directly invests in companies and drives operational improvements to create long-term value.
- Time horizon and involvement vary. Investment banking deals are short-term, often lasting weeks to months, whereas PE investments are long-term, typically held 3–7 years, with active portfolio management.
- Compensation structures are distinct. Investment banking offers high base salaries and annual bonuses. Private equity compensation includes base, bonuses, and significant upside through carried interest at senior levels.
- Skill sets overlap but diverge. Both investment banks and private equity firms require financial modeling, analytical thinking, and client management. However, PE additionally demands strategic, operational, and long-term value creation expertise.
- Career paths differ in trajectory. Investment banking follows a structured hierarchy from analyst to MD, with frequent promotions. Conversely, PE progression is competitive, often sourcing talent from IB, with fewer roles at senior levels but high long-term rewards.
- Personality fit matters. Investment banking suits ambitious, fast-paced, transaction-focused individuals. On the other hand, PE suits those who enjoy strategic decision-making, operational involvement, and long-term investment outcomes.
- Entry points. Most PE professionals enter from IB, consulting, or MBA programs, leveraging prior transaction experience.
