Investm✃ent Banking vs. Private💧 Equity: An Overview

Investment banking and private equity and investment banking both raise capital for investing purposes, but they do so in very different ways. Investment banks find businesses and then go into the capital markets looking for ways to raise mone🅠y from the investment crowd. Private equity firms, on the other hand, collect high-net-worth funds and look for investments in other 🏅businesses.

Investment Banking

澳洲幸运5官方开奖结果体彩网:Investment banking is a specific division of banking related to the creation of capital for other companies, governments, and other entities. Investment banks underwrite new debt and equity securities for all types of corporations; aid in the sale of securities; and help to facilitate 澳洲幸运5官方开奖结果体彩网:mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors. Investment banks also provide guidance to issuers regarding the issue and placement of stock. Investment banking positions include consultants, banking analysts, capital market analysts, 澳洲幸运5官方开奖结果体彩网:research associates, tradinꩲg specialists, and many others. Each requires its own education and skills background.

A degree in finance, economics, accounting, or mathematics is a good start for any banking career. In fact, this may be all you need for many entry-level commercial banking positions, such as a personal banker or teller. Those interested in investment banking should strongly consider pursuing a 澳洲幸运5官方开奖结果体彩网:Master of Business Administration (MBA) or oth🔥er professional qualifications.

Great people skills are a huge positive in any banking position. Even dedicated research analysts spend a lot of time working as part of a team or consulting clients. Some positions require more of a sales touch than others, but comfortဣ in a professional social environment is key. Other important skills include communication skills (explaining concepts to clients or othಌer departments) and a high degree of initiative.

Private Equity

澳洲幸运5官方开奖结果体彩网:Private equity, at its most basic, is equity (i.e. shares representing ownership) in an entity that is not publicly listed or traded. Private equity is 澳洲幸运5官方开奖结果体彩网:a source of investment capital that comes from high net worth individuals and firms. These investors buy shares of private companies—or gain control of public companies with the intention of taking them private and ultimately 澳洲幸运5官方开奖结果体彩网:delisting them from public stock exchanges. Large institutional investors dominate the private equity world, including pension funds and large private equity firms funded by♔ a group of accredited investors.

Private equity is sometimes confused with 澳洲幸运5官方开奖结果体彩网:venture capital because they both refer to firms that invest in companies and exit through selling their investments in equity financing, such as 澳洲幸运5官方开奖结果体彩网:initial public offerings (IPOs). However, there are major differꦛences in the way firms involved in the two types of funding conduct business.

Private equity and venture capital buy different types and sizes of companies, invest different amounts of money, and claiꦫm dif🌺ferent percentages of equity in the companies in which they invest.

Key Differences

Sell-Side vs. Buy-Side

澳洲幸运5官方开奖结果体彩网:Investment bankers work on the sell-side, meaning they sell business interest to investors. Their primary clients are corporations or private companies. When a company wants to go public or is working through a merger-and-acqui🎃sition deal, it might solicit the help of an investment ban൩k.

Conversely, private equity associates work on the buy-side. They purchase business interests on behalf of investors who have already put up the money. On some occasions, private equity firms buy 澳洲幸运5官方开奖结果体彩网:controlling interests in other b🌌usinesses and are directly involved in management decisions.

Regulatory Challenges

In 1933, the United States became the first and only country in the world to forcibly separate investment banking and commercial banking. For the next 66 years, investment banking activities were completely divorced from commercial banking activities, such as taking deposits and making loans. These barriers were removed with the 澳洲幸运5官方开奖结果体彩网:Gramm-Leach-Bliley Act of 1999. Investment banks are still heavily regulated, most notably with 澳洲幸运5官方开奖结果体彩网:proprietary trading restrictions from the 澳洲幸运5官方开奖结果体彩网:Dodd-Frank Act of 2010.

Private equity, like hedge fund investing, has historically escaped most of the regulations that impact banks and publicly traded corporations. The logic behind a lജigh𒆙t regulatory hand is that most private equity investors are sophisticated and wealthy and can take care of themselves. However, Dodd-Frank gave the SEC a green light to increase its control over private equity. In 2012, the very first private equity regulatory agency was created. Particular attention has been paid to advising fees and taxation of private equity activity.

Analysis

Investment banking analysis is much more careful, abstract, and vague than private equity analysis. Part of this is ex▨plained by the compliance risks investment banks face, as painting too specific or too rosy a picture can be perceived as misleading🐻.

Another possible explanation is that private equity associates are much more likely to have "skin in the game," so to speak. With their own capital on the line and less patient clientele, private equity analysts often dig deeper and more critically.

Culture

Colloquial tales of a private equity associate lifestyle appear to be much more forgiving and balanced than their counterparts in investment banking. The strict, suit-and-tie, 14-hour and high-stress 澳洲幸运5官方开奖结果体彩网:corporate culture popularized i♔n movies 💝and television reflects investment banking culture.

Private equity firms are usually smaller and more 澳洲幸运5官方开奖结果体彩网:selective about their employees. But once a hire is made, 🍎they care less about h🥃ow performance is maintained. There are exceptions and overlaps in every industry but, in general, the average day is a bit less stressful for private equity associates.

The Bottom Line

Investment banking is a division of banking that provides advice on large, complex financial transactions on behalf of individuals and corporations. Private equity, on the other hand, is an investmeꦓnt business that uses collected pools of capital from high net worth individuals and firms. Although they have different business models, bo🎐th investment banking and private equity share the goal of raising capital for investing purposes.