Do most hedge fund managers come from top MBA?
It seems that every hedge fund manager comes from Wharton, Columbia or HBS. Few have come fron NYU or Chicago Booth. I dont see many that have started from nothing, like entrepeneurs. Why is that? Is being a hedge fund manager the only career that requires an MBA? an if so, why only the top MBA? Because of the contacts with power and money? Even Warren Buffet, that says that he doesnt hold on his wall his degree from Columbia, have a business partner and financial analyst assistan from HBS.
My opinion (which might not be worth anything):
To start a hedge fund, you need:
Both of these requirements are easily found at top MBAs. People that attend Top MBAs are usually rich (they have to be to be able to afford it or they will be), so they can put up the capital. A bigger, better network means more starting capital.
Also, it's ridiculous to think you need an MBA to be a hedge fund manager. It just helps to bring in new business and to legitimize your firm. Think about it, if you get a degree from Mogadishu University vs. one from Harvard people will obviously think you know more about what you're doing if you attended the latter. I'm sure powerful alumni from Harvard would be more willing to invest in your hedge fund just because of the alumni network if you went there as well.
Unfortunately I don't know the HF industry that well, but a 30 second search on Google should come up with a bunch of names of HF managers that didn't attend Ivy league schools...especially those in Europe. For instance, I just spent 5 seconds: Alan Howard (Brevan Howard)-> imperial college london.
Yeah to add, there is a good amount of HF managers who have gone to get MBA's from random schools, they just put in the hard work and got good experience during previous jobs. A good example would be an uncle of a good friend of mine, the guy received his MBA from Pace University, still a good program, but definitely not prestigious. He actually studied accounting too, however, he got some job doing prop trading and eventually became fucking great at what he did. He's been running a HF in Connecticut for over 10 years now.
He studied accounting, you say?
Hedge funds don't typically chase pedigree as much as other fields of high finance. They're rather have a great investor who is very smart, don't need an MBA to be a HF manager, or even an MSF.
I have a much harder time thinking about a hedge fund manager with a mba than without one. Exactly the opposite in PE and VC.
A lot do have undergrad from top schools though.
Ackman and Tepper for starters
Edit: Hadn't gotten far enough down the comments to see giant list
Interesting.
Hfs are the one finance career where an MBA is a negative if anything
^ this
No, this is not true. Just off the top of my head, the ratio of have to not is like 1:15
Why are MBAs so coveted? It's just a networking circlejerk paired with undergrad 2.0 classes.
I get why individuals want them, but why does the business community as a whole value them when everyone knows what they entail?
Furthermore, why do people even bother getting MBAs from mediocre schools?
In client service and sales roles, pure network. In MM PE, sourcing/credibility. In corporate management, its a bit more irrational credentialing and checking a box, although you can argue for some cross-function learning.
MFin probably reduce your ability to deliver alpha insofar as they indoctrinate you with EMH crap. Bschools do as well, but its likely 1 class you go to hungover rather than a full year of intellectual brainwashing.
This is not true. Given the diversity of the HF-industry a few so called "top business schools" could never provide the majority of the top HF managers. Here is a short list of some current (and some former) top HF managers and their educational background:
Bridgewater Associates Ray Dalio (MBA from HBS) David H. McCormick (PhD in Public Affairs from Princeton) Greg Jensen (BA from Dartmouth College) Eileen Murray (BS from Manhattan College)
Quantum Funds George Soros (PhD in Philosophy from LSE) Stanley Druckenmiller (PhD-dropout from UMichigan)
Paulson & Co. John Alfred Paulson (MBA from HBS)
Brevan Howard Asset Management Alan Howard (MS from Imperial College London)
Appaloosa Management David Alan Tepper (MBA from Tepper School of Business at Carnegie Mellon - guess how it got that name...)
Caxton Associates Bruce Stanley Kovner (PhD-dropout from JFK School of Government)
Moore Capital Management Louis Moore Bacon (MBA from CBS)
Farallon Capital Management Tom Steyer (MBA from Stanford GSB)
SAC Capital Advisors Steven A. Cohen (BA from Wharton)
Och-Ziff Capital Management Daniel Och (BS from Wharton)
BlackRock Laurence D. Fink (MBA from UCLA) Robert S. Kapito (MBA from HBS)
AQR Capital Cliff Asness (PhD and MBA from Chicago Booth) John M. Liew (PhD and MBA from Chicago Booth) David Kabiller (MBA from Kellogg School of Management)
BlueCrest Capital Management Michael Edward Platt (BS from LSE)
D. E. Shaw & Co. David E. Shaw (PhD from Stanford)
Cerberus Capital Management Stephen A. Feinberg (BA from Princeton)
Renaissance Technologies James Harris Simons (PhD Berkeley)
Tudor Investment Corporation Paul Tudor Jones II (BA University of Virginia)
I count 24 managers, where only 4 of them have MBAs from what you label the "top" schools. On the other hand there are seven managers with just a BA, four PhDs plus two PhD dropouts.
The Hedge Fund industry is a meritocracy. Nobody cares about your pedigree, only about your ability to make money.
Phd in Philosophy is the only cool one on that list. Didn't know he studied under Popper though, that's pretty awesome
But there is still a clear preference/leg up if you went to a top ten school. MBA aside.
maybe not as much as Ibanking, but certainly more than prop trading for example.
top ten = pedigree
You have the causality backwards here. You're assuming that it is the school that pushes them to the top, whereas it is more likely the case that being very smart is the reason for both their career successes and for getting into top schools.
At the top prop firms (Jane Street, SIG, etc.), you'll find a huge over-representation of students from top schools as well.
actually i think the school has a lot to do with it. if you dont go to a top school its very difficult to get your foot in the door, at a bank or hedge fund, in some cases it is simply impossible. someone else mentioned the extensive alumni network that you get access to, a good chunk of these alumni are in finance and work for hedge funds.
A lot of HF's are often seeded by other hedge funds, i doubt non-targets have a shot at any big fund like bridgewater or de shaw. In some cases it even says on the career pages on websites of some of these funds that they look for candidates from top schools.
Imagine this scenario- you are 25 years old, and are a high school drop out and have done extraordinarily well investing in the market, starting off with 100,000 dollar and turning it into well over a million dollars over the last seven years (audited). this is not something you can put on your resume if you wanted to work at a major hedge fund. In fact I doubt they even care whether or not you've made money on your own. they would likely still choose the harvard grad over you, because you are a high school dropout. In fact at some funds they would prefer you not to know anything about finance so they can teach you their process themselves. this guy def has no shot at a bank or hedge fund, but certainly might have a decent shot a mid tier salary paying prop shop!
I agree that MBA is meaningless, but pedigree is a very big deal. I think the ocr recruiting by very large funds at top schools, is good proof. And to be quite honest, ive met people from a decent amount of the funds mentioned above, I dont think I have ever met a single one that was not from a target.
I agree its a meritocracy to some extent, this is only the case after you have gone to wharton, and worked at bridgewater for 15+ years. then at that point its a meritocracy (keep in mind this is the case across most industries, wall street or not). until that point however, pedigree is a very very big deal, if not everything. but i agree MBA is quite meaningless.
All of your points are valid, but most of these guys did not start their careers in a financial world that looked anything like ours today.
I think that the recruiting system for leading financial institutions has only recently become as rigid as it is today. It seems that a lot of older guys on Wall Street come from much more diverse backgrounds, not only in regards to their schools, but companies that they have lateraled to and from.
Unscientifically, I'm actually SURPRISED how many of those managers have MBAs.
Another thing to remember is that many of the current generation of hedge fund founders went to school when it was much more common to do MBAs concurrently with undergrad (Larry Fink for example is '74 UG and '76 MBA from UCLA, Moore is '79 Middlebury/'81 CBS, Paulson is NYU '78 Harvard '80, etc). I actually have can't think of more than a handful of investment professional under 40 MBAs at my firm (large, well-known fund).
I guess they all did not come from a top MBA. However, it seems that most of them did go to a prestigious undergraduate program.
Its not necessarily just UG.
It could be a masters in english (as long as its from a top school), and you'll prob still be preferred by most big hedge funds like bridgewater, than a college/high school drop out, with an awesome track record. Its absolutely ridiculous, but it is what it is. If it where a true meritocracy then this would not be the case.
In fact if it were a true meritocracy then hedge funds would at least take into consideration, how well candidates have done in the markets on their own.
after you're in of course you need to make money, then it becomes more and more meritocracy, but only after you show that you have pedigree.
Because proving what you have done in the markets on your own is very difficult. If your trak record is really that outstanding it may still work (look at burry). Hfs don't valve time to interview highs cool dropouts that think because they clicked a fe buttons n eir pa and got lucky the are the new George soros.
Its evident that your not going to get your foot in the door in a hedgefund being a highschool drop out but I think the sample size gives a pretty clear answer. There is no direct route as theres guys in there with just UGs and others with MBAs and PHDs. I think what it really boils down to is determing what will give one the highest odds of breaking in - if there looking at further education to open up some doors providing this person can actually generate alpha with or without a masters....
to clarify I only say HS dropout, as hyperbole to show that pedigree matters.
and without it it is extremely difficult, and almost impossible to have anything to do with the hedge fund industry.
you can use HS dropout interchangeably with non target,etc.
in the hypothetical i mentioned, I said that the guy has traded for 7 years and made over 1000% in that time and paid to be audited. I think thats very consistent. and i doubt thats the luck of pushing a few buttons. cmon now.
How come they cant interview him, but can interview the guy straight out of stanford with a liberal arts degree (albeit this guy may be incredibly hard working, smart and talented) and may not have ever invested in anything, or may not have even put together an investment pitch, or even knows the difference between a stock and bond, and might be completely clueless when it comes to financial markets.
do they think that this stanford guy will be the next Soros, and that he is better than the guy that dropped out?
I think its very unfortunate that this case, but thats not my point.
My point is that, that is certainly not a sign of a meritocracy. actually it is quite representative of an industry that pays much attention to pedigree, at least when getting your foot in the door.
Edit- burry went to vandy and did a residency at stanford, again pedigree is very important.
Name another widespread business degree. No, Master of Finance or Master of Real Estate or whatever are not widespread.
It isn't JUST a networking circlejerk. Liberal arts majors who want to progress in business could definitely learn a thing or two from "undergrad 2.0" business classes, and even business undergrads can learn things from their classmates.
Everyone doesn't know what they entail, and they do entail more than you make them out to be.
That I can't really argue with you on, but at a lot of non-wall street businesses prestige doesn't mean anything. So if someone's company is paying for them to get it at the local university, and they wouldn't get into a top school anyhow, why not?
Good point, but to "make money in the financial markets" isn't the reason one typically gets an MBA, so for that purpose it probably isn't the best route. I get that this is WSO and this thread is about Hedge Funds, but my response was to the broader "why are MBAs so coveted" question.
Pedigree (of all the highest of the high finance summits) is not so important for a hedge fund. And no amount education can teach you "how" to make money in financial markets, it will only give you the tools and foundation for learning how to make money in the markets. By no means do you need a degree to make money in financial markets, however the probability of you being able to understand them (therein, hopefully make some money), are a lot greater with a good degree.
I like that you're defending your hypothetical guy's theoretical audit of his imaginary returns.
Some things that I think you're missing: a) Funds don't hire (junior) people to come in and start making independent investing decisions. They hire people to do some combination of bitchwork and process execution, and see if they manage to pick anything up while they do it.
b) Racking up big gains in your PA-even for an extended period of time-is extremely different than managing any meaningful amount of outside capital for a number of reasons
c) If this person (or someone like them) DOES exist, they should just keep doing what they're doing and find some friends-and-family capital or other seed money, not waste their time interviewing for entry-level positions. That 1000% return over 7 years (38.9% CAGR, by the way, so very good but not anything unheard of on a gross-of-fees basis especially on a small capital base) would speak for itself.
Put another way: Forget the audit. It's not that funds think your brokerage statement is faked, it's that they don't care. They're looking for smart meat for the sausage grinder, not some pinball-wizard-esque stock-picker. You can wail about it all you want, but the world at large thinks that getting into and graduating from a good college is a meaningful predictor of intelligence, ambition, and potential.
fair enough, but the point of me bringing up this hypothetical hyperbolic situation as I have stated several times is to show that hedge funds are not a pure meritocracy.
And if they were meritocratic, this performance should count for something but it does not unfortunately. It should absolutely not be totally meaningless, that someone beat the market putting their own money on the line. In fact it should be at least considered as much as someones GPA.
Also im not wailing about anything, you seem to have completely misunderstood my point. All im saying is that hedge funds are not a pure meritocracy at first, and that pedigree matters a lot. later on when you have been in the industry a few years then it matters less, and then it becomes more and more meritocratic.
please re read what I wrote.
But how is dropping out of college and doing well in your PA have more merit than going to a target and taking the normal "path"?
it doesnt.If you read my posts above Im comparing a student with an english degree in stanford with no background in anything related to finance, vs. someone who has done very well investing on his own, that does not have a degree. One person can talk to you about things like risk management, and will likely converse with you for hours, on the depth of various companies and why their business models work or dont work, etc.
the other student will write very interesting essays on shakespeare, which is great ( im not criticising liberal arts), but the stanford student here clearly is not as "qualified" as the other guy. Of course it takes hard work and brains to get into stanford. But at the end of the day(although many would like to believe) there is very little application of english to the financial markets. It should not make a difference what school you went to if HF's were truly meritocratic.(Yes I am aware that some HF managers have english degrees, they are the exception). But it clearly DOES make a difference which means HF's are (at least when you get your foot in the door) very concerned with pedigree.
However there is no reason why HF's should take the stanford student with very little knowledge on finance over the guy who has done exceptionally well on his own, if indeed the HF industry were truly meritocratic.
edit- you can replace dropout, with non target grad with 4.0 in economics. And still there is a very clear preference for the stanford guy on wall street, even though the stanford guy may not know the difference between a stock and a bond, whereas the other guy did better than most money managers do before fees for 7 years.
performance in a PA counts for very little, especially if you're thinking about a fundamental analysis position. if you go read seeking alpha, there are a ton of guys who talk about how much money they've made by being 'value investors'. 99% of them are complete idiots.
as said above, running a large amount of institutional money is not the same thing as making trades in your PA.
so is an english degree is more meaningful? just because its from a target? if that's your perspective I can respect that, but i think its quite foolish.
A.) No hedge funds (that I've ever hear of), hire UGs with english degrees. They usually go through the IB program which is a very tough filter for those who aren't interested in investing, and then the top percentage of those are chosen/decide to pursue the HF path.
B.) There is a massive difference between a HS dropout with a PA and a non target grad with a degree in economics that graduated summa cum laude.
C.) The hedge fund PMs and analysts that I think you are comparing are the very top of the HF pile, there are many many smaller HFs that do quite well and hire less pedigreed individuals.
I'm sorry people weren't persuaded by whatever your pitch was, but think about it another way: give experienced hedge fund managers some credit for knowing what they're doing.
The degree proper is not meaningful (people don't really care about you having learned about Proust), but the things it serves as a proxy for (raw intelligence, ability to work hard) ARE. I say this as someone who is on the low-end pedigree-wise for the industry.
Also, the converse of your statement (that, implicitly, a finance degree IS meaningful), is definitely flawed.
There's a running joke at my firm about candidates who talk about having turned their bar mitzvah money into $X dollars
I guess that the only benefit you get from a top school are contacts.
I dont believe in coincidences, an it is a big coincidence that: Mario Gabelli Li Lu Paul Sonkin Greenblatt Todd Combs Warren Buffet Charlie Munger Henry Kravis Acman Ray Dalio John Paulson
Went to either Wharton, Columbia or HBS
Forbes Hedge Fund Billionaires (does not include PE who are 90% HBS):
columbia lse princeton nyu/harvard mba mit/berkely doctorate liu/harvard mba upenn carnegie mellon mba harvard uva yale harvard vanderbilt u cali/stanford doctorate bowdoin nyu hunter/columbia mba upenn bucknell suny william upenn/harvard mba upenn/booth mba uroch/harvard law cornell alfred columbia clark/ny law middle/columbia mba dartmouth/harvard mba suny/columbia mba fordham/columbia mba yale columbia
Thanks for this list. Further proof that in finance, a top MBA is NOT overrated. If anything it's sort of underrated.
same threads over and over...no, hedge fund managers do not need mba's or ivy league degrees. If you want to a) use your lack of a target school degree as an excuse to make yourself feel better about not being able to get a job or B) want to pretend your ivy league degree is an admissions ticket to the world of hedge fund management, you can feel free to do that but its not true.
Many HF managers have ivy league degrees at either the graduate or undergrad level. Many other hedge fund managers do not. ...therefore i think it is fair to conclude that other factors are probably very important...
I echo the general sentiment expressed by Bondarb and others that ultimately what matters is your talent and ability to make money. However, I think having the right academic pedigree has now become a huge filter and signaling mechanism (this is true in almost all industries now). Thus, it's increasingly difficult to get your foot in the door at a top hedge fund without the right credentials.
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