Sankaty Advisors vs DEShaw - MBA vs PhD Hedge Fund

Recently, I had an nice opportunity to attend company presentations of Sankaty Advisors (which is part of famous Bain Capital) and DE Shaw. These two companies are considered to be best Hedge Funds in their classes. Sankaty Advisors has very fundamental oriented investment strategy, whereas DE Shaw is considered to be purely quantitatively driven. Both companies generated superior returns in recent years.
I am writing about these hedge funds just to show how different opportunities Hedge Fund industry offers. Comparison of the profiles of these two companies shows that there is place in HF industry for both business major students with MBAs or CFAs (Sankaty Advisors) and also for those who have scientific background like PhD (DEShaw).
Sankaty Advisors invests in leveraged loans, high-yield bonds, distressed/stressed debt, mezzanine debt, structured products and selected equities. Sankaty Advisors puts great emphasis on fundamental analysis. They claim they always need to understand the business of any company they are investing in. If you would like to work in this firm, MBA or CFA would be highly beneficial.
DEShaw is mainly statistical arbitrage fund, so great deal of transactions is automated. Computers using sophisticated trading models are speculating on various markets and are exploiting subtle mispricings. Your mathematical background may be very useful in the process of preparing this models.
As the example of these companies show, hedge fund industry is not a solid entity. There is a number of different opportunities you may pursue if you want to work there and each of these opportunities may be prestigious and rewarding.

If I were to decide between these companies I would have a great problem. Both seem to be really nice. The presentations were on comparable level. However, I believe what I would learn in Sankaty Advisors would be more transferable. I could learn a lot about the business and "fundamental oriented investing" and then apply this knowledge somewhere else later. The same with DEShaw would not be that easy. There are not so many places in which you can use cutting edge quantitative skills. Maybe some statistical arbitrage desks of Investment Banks, but still the market is not that big for that. So, I claim that in fact Sankaty Advisors is a safer option for those willing to go for Hedge Fund industry.

If you know something more about various hedge fund please write about this in comments to this post.

Results of third survey

Best career choice for CFA Charterholder is:

CQF - Certificate in Quanitiative Finance

CQF is a specialized certificate for all those who are interested in becoming Quants in Investment Bank. This certificate was launched by Paul Wilmott, who is considered by some as a guru in this field. The company that is organizing the exam and classes (which are integral part of the certification process and you cannot be awarded CQF designation without spending many weekends in the classroom) is 7City, which is also preparing students for CFA and other certificates.
CQF designation is not very popular, but due to the fact that it is very focused it is quite prestigious in the quant environment. It has simply no competition. CFA or CAIA are by far more general and do not cover asset pricing (etc. Ito's Lemma, Interest Rate Models) deep enough to prepare a candidate to very technical field of quantitative finance. If you are thinking about becoming a Quant CQF certificate (or more broadly - a CQF Course of Studying) will prepare you to that role. You need to remember, however, that you need very good prior math preparation in order to catch up with the course of studying.
And should you do CQF if you already have PhD in Finance or in Economics? I think that it will not be very wise choice to do that. PhD is already very useful degree for Quantitative Finance. CQF is expensive (~10k pounds) and it takes time to finish it. On the other hand, if you have PhD in other discipline (like Chemistry, Mathematics) and you never did anything with finance, getting a CQF will probably open a lot of doors in IBanks for you.

Which degree/certificate for specific division in Investment Bank?

If you want to have successful career in the investment bank you have to carefully tailor your education to your goals. Some degrees/certificates may be useful in certain division and completely useless in different ones. Below, I created a list of the certificates/degrees that are most useful in various IBank divisions. [You can find detailed information about various certificates under: examhub.org]. Of course the list is subjective - if you have suggestions please let me know.

Investment Banking Division: MBA should be considered as a top choice for all who target this division. IBD is mainly about general business knowledge, and MBA is great for that. I've heard about some IBD people with CFA, as CFA is quite prestige designation, and you need prestige if you are willing to work in IBD.

Sales: No specific degree or certificate is required. What counts most is your energy and ability to talk with people. MBA may be quite good for this division anyways (as MBA is about networking, and in Sales you may use your network/contact to market the products). In Hedge Fund sales CAIA degree may be desirable.

Flow Trading: Most useful certificates for flow trading are ACI (ACI Association) or FSA certificates. This certificates are focused on very specialized knowledge (how to make deals in the market, how to book the deals etc)

Prop Trading: Prop trading (including Stat Arb.) is nowadays very quantitative discipline. PhD in highly quantitative discipline (physics, economics etc) is preferred, but in this business there are many people, who are self made men - without special degree etc.

Research: In economics research EconPhD is extremely useful. In equity research CFA is a good choice (better than PhD)

Wealth Management: CFA or MBA are very useful

Risk Management: FRM or PRM are good choices. PhD may be useful as well.

An interesting article for all MBA applicants

http://www.insidecrm.com/features/mbas-are-overrated-081307/

Results of second survey

Qualifications of Investment Banks' CEOs

For sure there is no easy and universal way to the top positions in investment banks or similar institutions. Each success case is entirely different. What is more, most of us will never become a CEO or even a Managing Director (what a pity ;) ). Getting on the top of the financial world is not just a matter of qualifications and hard work. What counts most is the luck. Luck of being in the right place at the right time. I think, however, that it is still worth to study the qualifications of people, who currently rule the financial world. I collected all available data about education of the top managers in financial industry in the table below.

First conclusion of this analysis is that qualifications of top managers differ a lot. We have guys, who completed MBAs at Harvard, but at the same time many of CEOs graduated just with BA degrees. This indicates that a degree is probably not the decisive factor for the success in the Investment Bank. Degree seems to be only entry level requirement...
What is more none of these great CEO's had any of these fancy certificates (like CFA, FRM or CAIA). The reason for that may be the fact that all these certificates were not popular when current generation of CEOs began their careers. Maybe CEOs of future, who begin their careers now, will have these qualifications.

Best excuses...

After writing all this serious stuff about job hunting and various degrees its time for something much lighter!
On the efinancialcareers website I found quite interesting text. I think you may be interested as well :)

"How can you disappear from your desk without broadcasting the fact that you're looking for a new job?
With analyst bonuses about to be paid, now's the time when investment banks' greener employees are liable to nip out to have a few words with alternative employers. Bearing this in mind, The All Nighter is offering handy excuses for getting out of the office without revealing what precisely what you're up to. Here they are, distilled:
• Dentist, doctor, home delivery (only good for one interview, hard to pull off twice – unless you're having root canal treatment).
• Complain about back pains from sitting in front of your PC – out of paranoia about law suits, banks will first replace your chair, then (if you keep complaining) pay for chiropractic sessions which will give you the excuse to get out a few times a week.
• Go out for regular cigarette breaks. When you're gone for a bit longer people will assume you're drinking coffee as well as having a smoke.
• Wear a suit at all times – that way it will be less conspicuous when you come in wearing a suit for your interview.
The last point may be the most important. We asked a (very) senior banker how he spots people who are going out on something other than company business: "It's obvious because they are wearing a suit with a tie done up," he says. "They also leave at odd times and, more to the point, I have a call report system which lets me know precisely what they're doing at each time of day."
Is this a problem, we wonder? Apparently not: "I don't mind that people are going out interviewing," our senior friend explains. "If I drive it underground then they'll just respond by creating false meetings and doing it at the weekend. I'll then know less about them than I do now – if they're not happy (and want more money) it's better to know about it."

Results of the first survey

PhD in Economics or PhD in Finance?

If you are interested in finance and economics and you want to do a PhD you need to decide whether you want to have EconPhD or PhD in Finance. Many universities have both degrees in their offer. In this post I will write why, in my opinion, going for an EconPhD seems to be a wiser route then pursuing FinPhD, even if you want to work in finance after completing your PhD program.
First, while doing a PhD in Economics you can write you thesis on financial topics. Economics Department are usually so large that you can find many finance oriented professors in them. To give an example in Department of Economics at Harvard University you have Andrei Shleifer, Efraim Benmelech, John Y. Campbell, Jeremy C. Stein, who are very much finance oriented. There are many other examples of top finance profs in top economics departments, so even if you are doing your PhD in Economics Department, you can write PhD thesis which are finance oriented. On the other hand, finance departments are usually quite small and don't give that kind of flexibility. It will be hard for example to diverge with your topic from pure finance to microeconomics during your PhD in Finance. Second, EconPhD gives clear signals. In all private and public organizations people know exactly what EconPhD is. They know what they should expect from EconPhDs. Finance PhD programs are less established and usually have shorter histories. Also curricula of different FinPhD programs differ considerably. Its not like EconPhD where you always have Micro, Macro, Econometrics plus some options. Every Finance PhD program is different. The only plus for Finance PhD, in my opinion, is that usually continuous time statistics (stochastic differential equations) is often a part of the basic curriculum. If you want to do research in finance during you EconPhD you have to learn it by your own.
Generally, EconPhD is a safer option. It is considered to be more general (and it is) , so in the future you can use it to find a job even if it is not finance oriented.

When it is worth to get online MBA

The number of online MBA programs has exploded recently. Many established schools (but also new ones) offer online or distance MBA education. All programs differ considerably in the quality, length and prestige.
Of course online or part-time MBA courses are considered to be less prestigious than well established full-time MBA courses. Chicago MBA will be by far more prestigious than any part-time MBA course, unless its part-time MBA of... the Chicago GSB. Yes, Chicago GSB has its part-time MBA program! And it's not written on your degree that it was earned part-time. It is absolutely the same degree as standard Chicago GSB degree.
And what about other, less popular part-time or online MBA degrees? Is it really worth to pay bucks for any less popular online program?
The answer is as always: it depends.
If you are not working full-time, or you want to make a break in your work full-time is probably the best investment for you if you think about the managerial position in the future. Full-time MBA is also a good place if you want to build your network (but don't over-estimate networking - networking is not a most important element of the MBA program), have a wonderful time in your life or if you just want to look for the new job (during the full-time MBA program looking for a job is one of the most important activities).
However, if you already have a good job, you have family or you don't need "holidays" from work you should consider on-line MBA from the good school. This is especially true if you already have reputable education on different level (let say good MSc or CFA), but you need an MBA to be eligible for managerial position. If this is not a top-ten MBA program no one will look at the name of the university anyway, neither on wether this was full-time or part-time program. The most important will be that you have an MBA.
Of course you may find different online programs. You should analyze how much you want to learn and how much you want to pay for it.
Also the quality of different programs is various. Just compare some programs like: Instituto de Empresa MBA, Regis University Online MBA, Robert Kennedy College in Swiss, Frederick Taylor University and you will see that quality and level of fees varies hugely.

To conclude, I would say that not always is an online MBA degree useless. Sometimes, especially when you have good prior qualifications, online MBA may be the smartest route that would lead you to the managerial position in the company you are working in. And maybe even if you could combine online MBA program with learning to other qualification (for example CFA) simultaneously that would make your position on the job market similar to that if you finished very good full-time MBA program

MBA vs. PhD on the Job market

Greg Mankiw's Blog: MBA vs PhD

And what about the CFA?

[CFA vs. the rest of the world]
The second deadline for the CFA Exam in December 2007 is approaching soon. If you want to enroll to this program you shall be fast. The exam fee will rise to 465 if you pay for it after 15th of August.
The CFA Institute is advertising the CFA designation as the most prestigious designation in finance. Is it true? Yes. That is true. All other (strictly investment oriented - so excluding ACCA for example) certificates like PRMIA, FRM, ACI etc. are definitely less prestigious, and less popular. The CFA designation, however, does not give superior money earning power as some people think. In terms of money earning power some credentials seem to be much more interesting.
In order to see which are most powerful credentials on the financial markets I conducted small research. I analysed the job offers on the efinancialcareers website. I was looking for the offers in which employers explicitly stated that they look for certain designations/certificates and education.
Here is what I found when I searched through all offers:

• There were 171 Jobs online in which Employer stated that FSA is an advantage
• There were 167 Jobs online in which Employer stated that ACCA is an advantage
• There were 153 Jobs online in which Employer stated that PhD is an advantage
• There were 144 Jobs online in which Employer stated that MBA is an advantage
• There were 139 Jobs online in which Employer stated that CFA is an advantage
• There were 80 Jobs online in which Employer stated that MSc is an advantage
• There were 3 Jobs online in which Employer stated that PRM is an advantage
• There were 3 Jobs online in which Employer stated that FRM is an advantage

From this data you may see that ACCA and FSA designations generally outperform CFA in terms of the number of job offers.

And what if you are interested in trading for example? (I put the word trading into the search) The result of the analysis is on the chart below:

This chart shows that when you are interested in trading CFA designation is worth less than good MSc education for example. Relatively, the CFA charter is even less rewarding in trading environment than in general. This chart shows also that PhD qualifications are dominating trading now.

The CFA designation, although it is not the most "powerful", has many advantages you shall consider. First, you may work while getting it. Second, it is obviously much cheaper than good MBA (although still expensive). Third, you have growing community - CFA may be even more powerful in the future.

My personally, I am going to get my CFA designation (I hope) although I am studying for PhD right now. I think that combining theoretical side of PhD with practical approach of CFA will make me really interesting asset on the Job market.

Why they give more to PhDs?

Lately, I had an interview in one of the investment banks in London for the position in the Fixed Income Research. The position was not an entry one as I had some experience with the stuff they were doing. I said that I was a Master's student at my university, as if I started working from September I would have only Master's degree (I need at least one more year to finish my PhD).
The guy I was speaking with told me that although he thinks I deserve at least associate position (I had prior experience), he can offer me only a second year analyst. He told me that this is because they don't offer any entry level associate positions to Master's students. Only MBAs and PhDs are eligable. I told him that I am sure that after 1 or 2 more years I need to finish my PhD I will not be more clever then I am today. What is more, I will probably forget a lot from this what I learned in finance (as I am doing PhD in Economics and I had MSc in Finance before). He agreed with this, but told me that these are the rules.

I was thinking why they offer Associate positions to MBAs and PhDs, but only Analyst positions to Master's. Case of MBA's is simple. Usually MBA students have already a lot of experience, because they need it before they boarded on the Top MBA program. Offering them Analyst position would be like wasting their potential. And what about PhD students? I think they get Associate positions not because of their experience (because they don't have it) nor their knowledge (because this knowledge is usually useless), but because of their... age! Usually PhD are simply too old to work just on the Analyst position! Can you imagine a PhD (of age let say 27) who is working at par with 21 old who just finished his BA? I don't!

Although I am pursuing PhD at very strong university, I believe that this rush on financial markets for PhDs is unjustifiable. PhDs usually are not much more effective in day-to-day work than typical Master students, but the this is just trendy to have many PhDs on the trading desk...