Let’s begin by saying that no one should be discouraged from pursuing an MBA. However, it is important that one is clear on the motive for doing so. If the motive is to fast track employment with a hedge fund, one might be in for disappointment.
Some Harsh Facts
According to the 2018 Hedge Fund Compensation Report, just 4 percent of MBAs enter the hedge fund industry right out of school. That percentage is equivalent to those entering from public accounting and broker/dealer backgrounds. Conversely, 14 percent enter the hedge fund industry from asset management, 12 percent enter from student backgrounds other than an MBA, 11 percent enter the industry from the sell side, and 9 percent enter from investment banking backgrounds.
What Does This Tell Us?
The take-away is this—experience is what matters. The great majority of hedge fund firms are small organizations with few employees, consisting in many instances, of a portfolio manager and a few analysts. This model is replicated in many large hedge fund firms, with multiple portfolio managers and analysts, each responsible for their own portfolios. The common denominator for firms, small and large, is the need to generate positive returns.
Small hedge funds do not have the resources, the time, or the inclination to train those they hire into the firm. Most large firms, because they are comprised of multiple, small groups, have a similar view. Rather, they choose to bring in candidates with a proven record and experience in their given role.
This is not opinion, but is in fact supported by data, as evidenced in the aforementioned 2018 Hedge Fund Compensation Report. The chart below illustrates the responses of hundreds of working hedge fund professionals on the subject of in-house training.
Fifty-six percent of the respondents identify their firm’s training as weak or non-existent, while a paltry 3 percent report an excellent training program. When you consider that the response of “average” mirrors an industry in which training is weak at best and non-existent at worst, then more than 8 of 10 hedge fund professionals must rely on the skills and experience they bring to the job to ensure their success and the success of the firm.
What about Hedge Fund Jobs?
Advanced degrees, such as the MBA, are no guarantee of a hedge fund job offer. Experience is far more important in securing a position in the industry. That, and a proven record of accomplishment in one’s area of expertise, will almost certainly be the greatest factors in securing a position in a hedge fund firm.
This does not mean that an MBA is unhelpful. In fact, the 2018 Hedge Fund Compensation Report makes it clear that MBAs earned about 18 percent more in base pay than non-MBA peers did. More to the point, in terms of total compensation, non-MBAs earned just 75 percent of the total take-home earned by MBAs.
So, while there are many valid reasons to take an MBA, increasing your opportunity to secure a hedge fund job is not among them.
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