Source: Recruiter and admissions consultant surveys, BusinessWeek research
Finance: A Changing Sector By Sonal Rupani
Twenty years ago, if you asked the average person about finance, he or she would have spouted off about stocks and bonds. Today, the list would go on and on into other asset classes such as private equity, venture capital, hedge funds, real estate, and fixed income, just to name a few.
Finance is becoming increasingly less equity-oriented thanks to an improved awareness about the subject, according to Professor James Duffie from Stanford's Graduate School of Business. "People are getting interested in finance at a younger and younger age. It's quite a sexy topic nowadays," he says.
An education in finance opens up MBAs to a world of opportunity as analytical finance skills are valued in a range of careers, from the high-power world of investment banking to positions in corporate finance and consulting. With the economy picking up and recruiters looking to fill positions, Duffie says students with a passion and ability in finance have their roads paved for them at the moment.
ANALYZING FOR STRATEGY. Many people have the misconception that it's all about the math, Duffie says, when it's really more about having a logical and straightforward analytical ability. "In finance, sometimes situations that might seem complex become quite simple if you have a very straightforward way of breaking it down," he explains.
Make no mistake, it is important to be able to understand the numbers, and students must master the complex tools to perform formulaic data analysis, but it is equally important to be able to translate this research into strategies for borrowing money to raise capital and managing risk in investments. Professor John Cochrane at the University of Chicago's Graduate School of Business considers this the most exciting aspect of finance. "It is so beautiful," he says. "Through the theory we use and the empirical work that we do, we can bring order to a confusing world in unexpected ways."
He adds that the most challenging aspect of teaching finance to students is getting them to think quantitatively. "Valuating some strategy doesn't really make money; you have to look at the numbers and see if that strategy really works," he says. He agrees with Duffie that the challenge is not the math, but rather breaking the data down into simple fundamental analytics.
MODEL LEARNING. Classroom experiences vary according to subject and professor, but students can expect to work heavily with Excel spreadsheets, running statistical models, or in a case study-based curriculum that presents the data and puts students in an actual decision-making role. These exercises develop skills that a majority of students say are invaluable in the real world.
Sunny Patel, class of 2006 at Duke's Fuqua School of Business, says he is using the financial modeling concepts he learned during his MBA in his current project at Citigroup's (C) international division. Consolidating a number of complex models used across several countries to develop one global financial model that will be used for 40 different countries may seem like a daunting task, but Patel's finance background has prepared him well. The practical knowledge and case-based nature of his classes were very helpful in making the transition to a heavily analytical role at the company. One of the most important concepts he said he has learned is to always question his assumptions. "A model is only as good as the data you put into it," he says, "so you have to be always pushing the model and thinking about how sensitive are the variables in your data."
Despite studying finance in his undergraduate education, Patel says that a lot of the new material he learned was very in-depth and that he also developed a number of nonfinance-based skills, such as leadership, teamwork, and management skills, that will be useful in his future.
When Anders Geertsen's boss at Morgan Stanley (MS) handed him the investment portfolio of a wealthy client and told him to come back with a detailed analysis, it didn't take Geertsen long to look at the investments and report that they were poorly aligned with the client's interests. Geertsen's finance background served him well as he furiously calculated away to determine a handful of the important parameters such as duration, maturity, credit quality, yield, and volatility of the portfolio. "I used the tools I learned in business school to analyze the portfolio, everything from how to build a spreadsheet to how you think about analyzing the portfolio," he says.
Geertsen landed his dream job at Morgan Stanley after getting his MBA from Berkeley's Haas School of Business in 2006. The MBA experience itself was overwhelming and humbling, but absolutely worth it, he says. His interest in finance was sparked while he worked at a bank in his native Denmark, but he felt limited by his lack of formal education in business. "I had a background in the sciences and it was hard to learn by doing," he says. "I went to business school for three things: I wanted to learn the basics, expand my professional network, and expand my career opportunities so that I was able to better position myself."
Even though he did not initially know what to concentrate on when he arrived at Berkeley, after experimenting with a few classes, finance turned out to be the obvious choice for him. "Everyone has to find where their passion lies," he says. "Mine is in investments and analyzing how the markets work."
KNOWLEDGE SPIKE. It is no wonder that finance is the most common concentration or major in the MBA program. The concrete financial analysis skills that prepare students for popular careers such as investment banking and hedge fund portfolio management are tools that they will use consistently throughout their careers. The stability both in terms of employment opportunities and base salary is another typical reason to study finance. According to the Graduate Management Admission Council Graduate Survey 2006, finance and accounting positions are most in demand by employers, with 57% of employers looking to fill positions in this field.
Chicago Graduate School of Business student Luke Smart has already seen the direct impact of his MBA in terms of career opportunities, and he has not even graduated yet. Smart will graduate in December, but his MBA was an important bargaining chip when he was negotiating his salary in his move from a consultant position at Ibbotson to working with the quantitative and technology department at Bank of America (BAC). He recognizes that he wouldn't have been offered the position of an applications program consultant in capital markets had it not been for the knowledge he picked up in business school.
"You don't know what you don't know," he says in regards to his pre-MBA skill level. "When I was talking to Ph.D.s in the firm, they were just over my head. After the program, I'm finally starting to understand them."
BROAD FIELD. As someone who has always been inclined toward quant-heavy fields like portfolio management, he never really feels like he has missed the "soft" skills that are often emphasized in marketing or management courses. "I've been very focused on my path and what I want to do," he says. "The finance field is broad enough that I can accomplish any of my career goals."
A finance education, however, does not restrict students to number crunching, but rather encourages them to develop important leadership skills, as well. Mathew Megans, who graduated in 2006 from NYU's Stern School of Business, is another who joined the high-stress world of investment banking. He says the technical finance skills learned in class were important in helping him learn the specific functions for his job, but additional finance-based opportunities in B-school helped him develop in other ways. "My leadership position with a student club helped me with my presentation skills and overall confidence, and also allowed me to build a large network of professionals in my chosen field," he says. "I was also given the chance to TA an EMBA class for an investment bank, which let me further grow my professional network."
—Rupani
How to Choose a School for Finance
Many B-schools offer a solid grounding. Keep in mind the following factors when deciding which finance program is best for you:
• How influential is the research faculty? While this information is most important for trying to size up a school's Ph.D. program, professors often expose MBA students to their latest discoveries. Also take a look at course rosters: Some hot-shot researchers don't teach regularly.
• How wide-ranging is the coursework? If you know precisely which field you want to work in, find the programs that are big enough to offer specialized classes in, for instance, private-equity investing, options trading, or entrepreneurial finance.
• Who's hiring? Check the schools' Web sites and BusinessWeek.com's B-schools profiles to see which recruiters regularly come to campus and how many graduates each company hires.
• How will you be taught? If you prefer to learn mathematical or technical concepts in a lecture setting, you may not feel comfortable in a case-study environment. On the other hand, if you thrive on personal interaction and practical application, the case method may be right for you.
• How high-tech is the B-school? Many of the top programs offer cutting-edge technology that supplements finance education in spectacular ways. Does the school have a simulated trading floor? Financial information terminals?
Where Do You Go With a Finance Concentration? “Day in the Life” features from MBAs working in finance, plus career and recruiter interviews
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