<p>Many in the hedge fund world tend to think they are overrated. For some, the opportunity cost of going to be business school just isn't worth it. Interesting article IMO:</p>
<p>There is definitely a trend, but if you still want to have a top tier job such as Goldman Sachs, they still require an MBA from a top school.</p>
<p>I agree with the article, but disagree with the title of this thread.</p>
<p>All it is saying is that if you are in a good job that has no ceiling and nothing is stopping you from rising to the top than why aren't you? Why would you get an MBA if nothing is stopping you from being successful?</p>
<p>On the same hand, if you aren't where you want to be or have that ceiling in your industry then an MBA might be what you need.</p>
<p>In the Hedge Fund and Private Equity industries these ceilings don't exist so leaving to get an MBA and then trying to come back seems a little suspect. Still, you might need an MBA just to get into the industry.</p>
<p>The very point of the article is that ceilings that used to be there aren't so much anymore. For an elite but growing segment of Wall St, going back to business school just doesn't make any sense. </p>
<p>I agree that it depends on what you want to do in the industry. The fact is that most top traders at investment banks and hedge funds don't have MBAs, they are either quants or just damn good risk takers...a MBA just won't help one much in this arena. However, MBAs are much more common among dealmakers like bankers at Goldman and private equity guys. Does that mean you need a MBA to be a top Goldman banker? Of course not, but if you weren't a star analyst, it probably can't hurt. </p>
<p>It also comes down to where one is in their career. Look if Goldman is willing promote you after a few years regardless of the division you are in, it makes zero sense to get a MBA and compete for the same position 2 years later after spending a $100K, esp. with Wall St. compensation where it is now, the opportunity cost of business school just won't be worth it. On the other hand, if you couldn't get any meaningful job in the industry to begin with, clearly a MBA from Wharton will help your prospects significantly. </p>
<p>Just my 2 cents.</p>
<p>I think ABirch III hit the nail right on the head. It is clearly true that if you're already a star analyst at a top Ibank, hedge fund, PE firm, or so forth, sure, you probably don't need an MBA. Similarly, if you're LeBron James or Kobe Bryant, then obviously you don't need to go to college to be successful. </p>
<p>But what if you're not? The vast vast majority of new college grads won't get offers from the top financial services firms. Heck, the vast majority of them won't even get interviews from these firms. Keep in mind that these firms recruit at only a tiny minority of all of the colleges in the country. What if you, like most people, don't go to one of these colleges? Should you just kill yourself? I think not. It just means that if you still want to get into this industry, you will probably need an MBA. </p>
<p>To say that people don't need an MBA to become successful financiers is akin to somebody telling me (or anybody else) that if they just had the talent of LeBron James, they could have chosen to not go to college. Sure, if I had that talent, I wouldn't have needed college. But I don't have that talent. It's a false choice. </p>
<p>Furthermore, even if you are able to get that kind of top-level analyst job right out of college, what if you aren't a star? Let's face it. Simply by definition, most people are not stars. The small percentage of analysts who are stars will have a world of opportunities and promotions open to them. But the vast majority won't be given those opportunities. In fact, the vast majority will be shown the door after a few years, in order to make room for the new batch of analysts. What exactly are all these people supposed to do - commit suicide? These people presumably still want to advance their careers, and hence will probably find an MBA quite useful. Again, sure, if they had gotten one of those plum promotions and star opportunities, they would have taken that instead. But they didn't get that. Hence, they have to work with what they got.</p>
<p>I think another underlying point of the article was that, in some places, people in their 20s are being trusted with positions of tremendous power and value and making ridiculous amounts of money before they even start to watch their cholesterol. And now, such people don't even need an MBA to get to such positions, they can work their way in there with just a bachelor's degree. That is a newsworthy revelation.</p>
<p>Sakky's point is a good dose of reality that the article didn't have, but newspapers don't talk about ordinary people with ordinary stories.</p>
<p>Another sidenote along sakky's lines is, an MBA is a great time in your life to evaluate several options, consider carefully what you'd like to be doing for the rest of your life, and be given a wide range of attractive choices. It can be a major career checkpoint and possibly the last chance you'll have to easily switch between careers. It's also a two-year break from work where you won't spend your time fruitlessly - you'll meet people who'll be important to you down the road, you'll (probably) learn some things in the classroom that will make a difference for you, and you'll get exposure to things you may not have considered or even heard about. That is worth something for all but the select few who have a path paved with gold ahead of them, as was the case with the article.</p>
<p>I agree with what Denzera said. I would also add that I think another implicit point of the article is that MBA programs probably need to become more efficient. The truth of the matter is that a lot of what happens in many MBA programs just don't add that much value, or at least are perceived as such. Students in even the best programs inevitably feel that they end up wasting some time on busy work that they don't care about and are not value-added exercises for their careers. Numerous articles have been written about how many MBA students don't care very much about the actual MBA classes and are largely a waste of time, but instead derive value primarily from the networking and recruiting, which begs the question of why can't MBA courses be more relevent and more valuable (or if not, then why even force the students to take those courses in the first place?) </p>
<p>You could follow this logic and unwind the onion further. For example, the truth is, a lot of business school profs have never held a full-time industry job a day in their lives, but instead are just pure theorists (having earned their PhDs straight out of undergrad and then winning placement at a B-school, but without ever having actually held a real industry job). Not only that, but most business school profs are more worried about writing academic papers and winning approval from other academics (including academics in university economics, sociology, and psychology departments) than in actually producing research that is actually relevant to practitioners - which incidentally goes a long way to explaining why real world managers hardly ever read academic management journals, or, for that matter, have never even heard of any of the journals. Even some of the more prominent business faculty are not decrying the chasm that exists between business academia and business practice. I myself have attended B-school courses after which I would have to say that I came away with little of practical value that I could actually use in the real world. </p>
<p>I think it is entirely fair for students who are forgoing a small fortune in tuition and lost wages to hold high expectations for what they are getting for their money. This is especially so for those who are stars and are therefore giving up the most money were they to attend B-school. If B-schools can't or won't provide sufficient value for the money, then it is entirely proper and rational for those superstars to forgo B-school. </p>
<p>But having said that, I would still say that B-schools offers sufficient ROI for many (probably most) people. Just probably not for the superstars.</p>
<p>The article is typical of NYT. Grab a trend and be the first to write about it before it becomes a big technorati keyword. Some of these microtrends go on to be accepted and NYT ends up with the brownie points and the first Google search result for that keyword, but some don't. This article falls in the latter category, as it covers a miniscule proportion of the business community anyway. Hedge Funds? Wait and watch. I recall the junk bonds (oops, high yield bonds) craze from not long ago. The signs are already imminent. Anyway, the "insight" in this article has been a reality from time immemorial. If you're rising in your non-bschool feeder industry, why would you bother to spend two years (or a year in Europe) and a healthy wad of cash to take a break and resume the same ladder? Most people even in the olden days used to go on without an MBA (heck many of my own seniors are thus--and we're a bschool feeder firm now) and would simply consider a part time exec MBA or something for an entry into the club if absolutely required or to get away from a divorce or some such. Nothing new. MBA is here to stay, and is still very much the unspoken prerequisite in many boardrooms.</p>
<p>I doubt HFs will go away. They'll just become commodotized and eventually turn into what Mutual Funds are right now: below market returners.</p>
<p>
[quote]
I doubt HFs will go away. They'll just become commodotized and eventually turn into what Mutual Funds are right now: below market returners.
[/quote]
</p>
<p>Ha! I believe that much academic literature has been published that shows that most hedge funds right now produce below-market returns, especially when adjusted for both risk and fees. Similarly, numerous papers have demonstrated that the venture capital industry as a whole generates risk-adjusted submarket returns and that the vast majority of VC firms do poorly (the gains are disproportionately earned by the top x% of firms). The same is suspected to be true of private equity. </p>
<p>But that fact, interestingly enough, doesn't really seem to matter from a hiring standpoint. After all, just think about it from a selfish standpoint. If you're getting paid a gigantic package, who really cares if your investors are making money or not? After all, you got yours, and that's all that matters to you. By the time that the fund closes and the investors find out what's really going on, you're already retired on a beach somewhere. Furthermore, many investors *never*seem to catch on. For example, the founders of the notorious LTCM fund that collapsed in such spectacular fashion that it threatened the world's financial system were promptly able to start another fund immediately afterwards. </p>
<p>Hence, I believe the real problem is with careless investors. As long as investors continue to agree to pay high fees and bonuses to fund managers and employees, even (or perhaps especially) to those who don't really add value, then people will continue to rightfully view employment at these funds as a way to make easy money.</p>
<p>The same isn't suspected to be true of private equity, sakky - it already IS true. The largest buyout firms have the best dealflow, get access to the best deals (sometimes through investment bank ownership, i.e. GS Capital), and get the best returns as a result.</p>
<p>I probably shouldn't put a public link out there to this, but what the hell:</p>
<p>click</a> through Next in the lower right a few times, and you'll see some stats from research group Private Equity Intelligence on what the average IRR is for those funds.</p>
<p>
[quote]
Ha! I believe that much academic literature has been published that shows that most hedge funds right now produce below-market returns, especially when adjusted for both risk and fees.
[/quote]
Paper cite? Not that I'm doubting, I'd just like to read it.</p>
<p>
[quote]
Paper cite? Not that I'm doubting, I'd just like to read it.
[/quote]
</p>
<p>Sure, as long as you can read academic literature (which ain't exactly an easy read), and that you also have access to it. If you do not, I have included what I believe to be the most telling quotes. </p>
<p>Edwards & Calyahan 2001 (*J. of Futures Markets * ):
"...only about 25% of the hedge funds earn positive excess returns..." </p>
<p>Amin & Kat 2003 (J. of Financial and Quantitative Analysis )</p>
<p>"...The evaluation model, which does not require any assumptions with regard
to the return distribution of die funds to be evahuted, is applied to the monthly returns of
77 hedge funds and 13 hedge fund indices from May 1990-April 2000. The results show
that, as a stand-alone investment, hedge funds do not offer a superior risk-return profile.
We find 12 indices and 72 individual funds to be inefficient, with the average efficiency
loss amounting to 2.76% per annum for indices and 6.42% for individual funds"</p>
<p>Liang 2001 (Financial Analysts Journal)</p>
<p>"The
cumulative monthly returns of the hedge funds are
plotted against the cumulative monthly returns of
the S&P 500 from January 1990 to July 1999 in
Figure 1. A $1.00 investment in all hedge funds in
January 1990 would have grown to $3.39 in July
1999. The same investment in the S&P 500 would
have grown to $4.79 over the same time period."</p>
<p>Ackermann, McEnally & David Ravenscraft 1999 (* J. of Finance*):</p>
<p>"Hedge funds do
not consistently outperform market aggregates. In fact, on a total riskadjusted
basis, the market has a slight edge with 35 of the 64 mean and
median comparisons in favor of the market indices."</p>
<hr>
<p>But, as I said above, it doesn't really matter what returns hedge funds produce. As long as investors, for whatever reason, think that hedge funds are a worthy investment, then hedge funds will continue to compensate their employees quite handsomely and hence newly minted MBA's will flock to the hedge fund industry.</p>
<p>
[quote]
The same isn't suspected to be true of private equity, sakky - it already IS true. The largest buyout firms have the best dealflow, get access to the best deals (sometimes through investment bank ownership, i.e. GS Capital), and get the best returns as a result.
[/quote]
</p>
<p>Well, PE has been less well studied than have hedge funds and mutual funds. But I agree that the latest research is not particularly flattering to the industry.</p>
<p>Kaplan and Schoar 2005 (J. of Finance):
"On average, LBO fund returns net of fees are slightly less than those of the S&P 500..."</p>
<p>sometimes it doesnt make sense to back to school if you are already doing well. ive been saying that since 2002. i was in high school then.</p>