Private equity and investment banking both raise capital for investing purposes, but they do so in very different ways.

Both private equity and investment banking aim toward the same goal, but from opposite directions. Private equity firms collect high-net-worth funds and look for investments in other businesses. Investment banks find businesses and then go into the capital markets looking for ways to raise money from the investment crowd.

Sell-Side Versus Buy-Side

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-acquisition deal, it might solicit the help of an investment bank.

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 controlling interests in other businesses 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 Gramm-Leach-Bliley Act of 1999. Investment banks are still heavily regulated, most notably with proprietary trading restrictions from the 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 light 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.


Investment banking analysis is much more careful, abstract and vague than private equity analysis. Part of this is explained 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.


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 corporate culture popularized in movies and television reflects investment banking culture.

Private equity firms are usually smaller and more selective about their employees. But once a hire is made, they care less about how 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.

  1. Does the Volcker Rule prevent commercial banks from offering shares of hedge funds ...

    Learn about restrictions placed on commercial banks as a result of the Volcker Rule, a part of the Dodd-Frank Wall Street ... Read Answer >>
  2. What percentage of asset management firms are privately held and not publicly traded?

    Explore asset management firms, a major part of the financial services sector, and learn about the respective markets served ... Read Answer >>
  3. What is the difference between market capitalization and equity?

    Understand the difference between market capitalization and equity, two primary measurements used to evaluate the worth of ... Read Answer >>
Related Articles
  1. Financial Advisor

    Is Private Equity the Right Move Now? (PSP, PEX)

    With equities extremely volatile, does it make sense to move to private equity?
  2. Investing

    Private equity management: Fees and regulations

    Learn about the fees and regulations associated with private equity management, with a focus on the industry since Dodd-Frank was signed into law in 2010.
  3. Retirement

    Coming Soon: Private Equity In 401(k) Plans

    The day will soon come when private equity is commonly found among 401(k) plan investment options. Here's who's leading the charge and what to watch for.
  4. Financial Advisor

    3 Tips For Finding a Job in Private Equity

    Understand how difficult it is to break into the field of private equity, and increase your chances by preparing early and following these tips.
  5. Tech

    Concerns About China’s Private Equity Market: Implications for Global Alternative Investment Industry ...

    With the current economic trend in China, it is difficult to not worry that many investors may be pouring into a failing market.
  6. Insights

    Which Are the World's 10 Largest Private Banks?

    Most of the largest private banking providers in the world are headquartered in Europe or the United States.
  7. Small Business

    Is the Private Equity Bubble Still Expanding? (GS)

    Learn about the factors influencing valuations in the private equity market. Find out if there is a private tech bubble and if it is growing in 2016.
  8. Investing

    Private Equity Profits Shrink as Loan Sector Cools Off

    Returns have been falling for private equity funds that lend to small companies.
  9. Investing

    Tax Wars: Private Equity Vs. Wall Street

    Private equity firms could encounter challenges with a proposal to change interest expense deductibility.
  10. Investing

    Valuing Private Companies

    You may be familiar with publicly-traded companies, but how much do you know about privately-held firms?
  1. Private Equity

    Private Equity is a non-publicly traded source of capital from ...
  2. Repackaging

    When a private equity firm takes a public firm private by purchasing ...
  3. Privately Owned

    Privately owned refers to businesses that have not offered public ...
  4. Club Deal

    A private equity buyout or the assumption of a controlling interest ...
  5. 100% Equities Strategy

    A 100% equities strategy is an investment strategy for an individual ...
  6. Crossover Fund

    An investment fund that has investment holdings in both public ...
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center