The Story of a future George Soros....
I came across a post today on the Daily Beast that talked about how entry options into careers in finance have narrowed over the years and its implications. From a time when banks and hedge funds hired candidates from diverse non-finance fields to now, when being either a finance major or atleast a minor, having relevantand coming from a ‘target’ school have all become important points to check off from the must-haves list for new hires in the industry.
This is obvious from following the posts on WSO as well. The question that I would like to pose here is this and I hope you would share your ideas without bias on this one.
Do you think that following the route of Finance/Business Major in College(B.S./MBA) followed by Internships and then a traditional career in Finance/Management Consulting, has led to an erosion of talent that can exhibit broad-based thinking in the industry? How does the current system of education and hiring in financial services affect the future of the industry?
Read the the following exchange brought forth in this article. This is an excerpt from ‘Diary of a very Bad Year’(which features interviews with an anonymous Hedge Fund Manager) :
HFM: I’m sure today I would never get hired.
HFM: Yeah, it would be impossible because I had no background, or I had a very exiguous background in finance. The guy who hired me always talked about hiring good intellectual athletes, people who were sort of mentally agile in an all-around way, and that the specifics of finance you could learn, which I think is true. But at the time, I mean, no hedge fund was really flooded with applicants, and that allowed him to let his mind range a little bit and consider different kinds of candidates. Today we have a recruiting group, and what do they do? They throw résumés at you, and it’s, like, one business school guy, one finance major after another, kids who, from the time they were twelve years old, were watching Jim Cramer and dreaming of working in a hedge fund. And I think in reality that probably they’re less likely to make good investors than people with sort of more interesting backgrounds.
HFM: Because I think that in the end the way that you make a ton of money is calling paradigm shifts, and people who are real finance types, maybe they can work really well within the paradigm of a particular kind of market or a particular set of rules of the game—and you can make money doing that—but the people who make huge money, the George Soroses and Julian Robertsons of the world, they’re the people who can step back and see when the paradigm is going to shift, and I think that comes from having a broader experience, a little bit of a different approach to how you think about things.
I do not agree with the above two statements completely. However, there are two points to address here.
1. The assumption that all finance/business majors are formed out of the same mold and hence do not bring any new way of thinking to the table which in turn would not make them ‘as good investors as someone with a different or more interesting background would’.
I do not think the current system of education is so regimented that it churns out graduates year after year without inspiring them. Sure, there is a structured system of learning and taking exams and there is a great deal of emphasis on GPAs/the pedigree of acquiring a degree from a ’target’ school in the industry. But the pool of candidates vying for any position in finance/consulting has become so high and has made the hiring process so competitive that these accomplishments would not mean anything without a greater alignment of purpose and relevant experience throughto go with it.
Does this system result in a narrow, risk averse frame of mind, therefore restricting one’s thinking to a set paradigm? Again, I do not believe going through a systematized way of education to enter into the financial services industry is in any way debilitating the ability to think out-of-the-box. In contrast, the opportunity to go through the system helps a good thinker hone his abilities through exposure to existing and new ideas, provides a platform to grow into who he/she can be. Is this not true in any field, whether Engineering, Science or Art? Learning what came before, always preceded the ability to think about what will be. However the advances in the industry from one day to the next(by this I mean the complex financial products and positions that even the banks that built them have trouble reconciling) are so great today and the pool of candidates competing for any position so high that even the present-day/future Soroses and Icahns of the world would benefit from going to school with ‘the kids that grew up watching Jim Cramer and dreaming of working in a hedge fund’.
2. On the other hand, I concur that broader experiences would shape a person’s ideas to think in more practical ways and with the author’s lament that present day graduates shun work at not-so-glamorous manufacturing jobs for high paying Strategy/Consulting/ Banking roles.
Do you remember the last time you talked to someone with an MBA going into a traditional management rotation program? May-be as a sub-tertiary option! But management programs have certainly become elitist with an elitist view about which roles are appropriate and which are not for an MBA graduate.
But I believe that this is a self-correcting system and the glut in the fields of finance and consulting will push future graduates to seek out other industries. The next generation of graduates will certainly learn from their debt-carrying predecessors and decide to get into more vocational/engineering areas. This phenomenon will only grow in the future, leaving only the talented and the most persistent to follow their dreams in finance. We already see the results through lower enrollment rates in Law schools and the glut of PhDs resulting in many struggling to find relevant jobs post graduation. It is only a matter of time before the phenomenon translates to the financial services industry as well and we are already on way to the beginning of this end.
And then I think the anonymous Hedge Fund Manager's idea of a future George Soros coming from an 'interesting' background may be realized.
What do you think? Do you agree that the present day education and hiring policies do not produce great Investors/thinkers? How do you see the future of the industry shifting in this respect?