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An MBA Alternative: MIT Sloan's Master of Finance Program

For years, MIT’s Sloan School of Management offered no degree to rival the master of finance programs at Princeton, Columbia, and Carnegie Mellon. That changed in 2008, when the university made finance its first new one-year master’s program in more than 25 years. (It previously offered a finance certificate.) “MIT produces new degrees very rarely,” says Andrew Lo, the director of Sloan’s Laboratory for Financial Engineering.

Enrollment in the MFin program will increase to 120 students for the class of 2013, up from 57 for the class of 2010. Despite this growing popularity, however, administrators face a number of industry challenges, including how Wall Street’s troubles have begun to take a toll on graduates’ career prospects.

The program reported 92 percent of its 2011 class had job offers three months after graduation, down from 100 percent for the class of 2010. More than 220,000 job cuts are expected in the global financial-services industry this year, eclipsing 174,000 dismissals in 2009, Bloomberg data show. And in a fluid regulatory environment, teaching finance grows more complex. The so-called Volcker rule proposes to separate the investment banking, private equity, and hedge fund businesses of banks from their consumer lending units.

MIT expects students who aim to work in finance, and who may have opted for an MBA in the past, to gravitate toward an MFin in the future. Sloan MFin students are younger than MBAs on average (71 percent of the 2011 class had work experience of six months or less, vs. an average of five years for MBAs). And the MFin student body is predominately international, with about 78 percent of the 2011 class coming from outside the U.S. The median salary for 2011 MFin graduates was $82,000, and BlackRock, Cambridge Associates, Citigroup, Deloitte, and Morgan Stanley were the class’s top hirers.

Lo spoke with Bloomberg Businessweek‘s Erin Zlomek about the program. Here is an edited transcript of their conversation:

With so many cuts in the financial industry, how are your graduates finding jobs, and what opportunities are they taking?

The international focus is a strength of our program and is partly dictated by our diverse class. These students are eclectic in the kinds of positions they want and the cities they want to interview in. We have a variety of small and large firms that recruit with us. Students also go on international job treks. (A recent trip was to Banco Santander.)

Students who are passionate about finance are likely interested in the notion of risk and reward and how different resources are channeled through different securities markets. When this is true, careers can develop across many industries, even outside of finance. Take health care. One of the most challenging aspects in health care is figuring out how to finance innovation–it is very expensive and risky. An industry as far removed from finance as health care requires financial innovation, and with the right kind of vehicles, tremendous innovation can occur.

Also, I think our students recognize that when an industry is in flux, those are the times when the most opportunities are being created.

What skills do graduates of the MFin program tend to have?

Our grads understand particular programming languages–namely, Matlab, which is common in the financial world. Our students are trained in areas like risk management and derivatives, and they know how to deal with financial data. They’ve been exposed to different trading strategies. They also know how trading systems can fail and cause significant loss if not properly managed.

How does the application process compare with that of the MBA?

The applications are quite similar. Where it differs are the essays: We want the applicant to be specific about why they are interested in finance. We want applicants to have a good appreciation for different career paths in the industry. In this program, we are not trying to turn out a better day trader–we are trying to turn out responsible financial innovators.

Describe your curriculum.

We start all of our students with a rigorous introduction into financial theory and cover the basic capital markets, corporate finance, and accounting. This gives them a solid foundation of the mathematics and economics of these markets. Students can then take electives on topics such as investments, risk management, and fixed income. There are also action learning courses, such as a seminar in financial engineering, where they get to work on actual problems posed by financial institutions. There is also an externship, where students spend two to four weeks also working on actual projects.

How did the 2008 financial crisis influence your curriculum?

We decided to give our students broad exposure across various sectors of the finance industry. Regulatory change introduces new wrinkles–our students understand financial theory so they can practice within these structures and help institutions deal with the coming changes. The Volcker rule will be quite sweeping in its changes. Lots of derivative trading is leaving banks and being set up separately as hedge funds.

Is there an ethics component to the program?

This is an important issue. We introduce ethics modules in each part of class. For example, there is a case study about a financial institution that engaged in quantitative models, and there was a mistake in the model. After the mistake was discovered by senior quants at the firm, they decided not to disclose it to investors, nor did they fix it. That situation is not typical at financial institutions, but it involves ethics and disclosure, and those lessons are taught in tandem with other things in class. We did not relegate our ethics training to a lecture about being honest and moral. We felt ethics components had to be incorporated in the material we are covering.

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