The demand for talent in Wall Street and beyond is changing. Where MBAs once reigned, business schools now breed a more diverse band of graduates, set to meet the needs of today’s data intensive industries.
Leading the pack today are Master’s graduates in newly-designed programmes called Financial Engineering (MFE). But first, what is financial engineering?
Prominent finance author and academic Zvi Bodie defines it as the “application of science-based mathematical models to decisions about saving, investing, borrowing, lending, and managing risk”.
If engineering is about applying science for a constructive and practical purpose, financial engineering would be the practical application of math to create new financial devices.
Building the financial products and services of the future
At this moment in history, we stand between two seismic shifts in how we live, work and relate to each other. In 2018, we’re well into the age of information, which began with the invention of the computer and peaked with the proliferation of the internet to all corners of the globe.
We are also starting to see the full effects of the Fourth Industrial Revolution, described by the World Economic Forum (WEF) as the “fusion of technologies that is blurring the lines between the physical, digital, and biological spheres”.
While many of today’s innovations in artificial intelligence (AI), autonomous vehicles and quantum computing are in their infancy, writes WEF founder and executive chairman Klaus Schwab. “They are already reaching an inflection point in their development as they build on and amplify each other in a fusion of technologies across the physical, digital and biological worlds.”
Wall Street and data-focused firms everywhere are not immune from the scale, scope, and complexity of this technological revolution.
Fintech, as we have seen, is vastly expanding the range of financial products and services that meet consumer needs more efficiently and affordably. Naturally, today’s banks and hedge funds want and need quantitative experts to meet the challenges of today and the future.
The demand for financial engineers goes beyond the finance world too. Blockchain, a distributed electronic ledger that keeps a verifiable and unalterable record of transactions, continues to make waves in how businesses about currency – just look at the meteoric rise and collapse of Bitcoin. The effects of the disruptive technology stretch across virtually every industry that involves financial transactions, from e-commerce to real estate, investment, business in general, and even politics. Tech giants like Uber, Google, Facebook and others routinely find themselves in need of MFE graduates for their deep analytical immersion and ability to apply their skills to the intricate issues these firms constantly face.
With demand rising, the higher education sector is in a mad scramble to keep up. The number of MBA graduates continue to outweigh MFEs (Master of Financial Engineering), though the last decade has seen the number of graduate programs in quantitative finance and its cousin Data Science increase.
Within these sought-after programs, the Haas School of Business, University of California Berkeley dominates global charts; ranked first for the TFE Times’ Best Master’s of Financial Engineering Programs, while leading the definitive QuantNet ranking of Financial Engineering, Quantitative Finance masters programs in North America for two consecutive years.
QuantNet provides details such as placement and admission statistics for top programs in the region, as well as surveying program administrators, hiring managers and quantitative finance professionals from financial institutions around the world. According to its survey, Berkeley’s MFE has a 168 average GRE Quant among admitted students, with graduates earning a median first year base salary of US$124,000 or an average first year total compensation of US$160,083.
Berkeley’s MFE program is also ranked second in the nation this year for employment outcomes three months after graduation.
Eugene Lee (MFE 2006), a graduate of the prestigious program, continues to see his investment in grad school at Haas pay off.
Calling it one of the greatest investments he has made in his life (he put in two years to take all recommended math and computer courses, finish two levels of the CFA course, and complete the MFE prep courses before applying to the program), Lee describes the holistic educational foundation and mindset he learned through Berkeley’s MFE as “invaluable in staying nimble”, especially since investment models have come in and out of vogue through the years.
“While the workload at times was unbearable, the collaboration from my peers and the engaged faculty kept me on track and accountable,” he says.
“In addition to the program’s rigor, the entire staff worked relentlessly to polish each student’s presentation skills.”
In one year, students are challenged to think of innovative ways to integrate quantitative methods with the theoretical framework and institutional settings in which they are applied. They must complete 30 units of coursework (One unit = 15 class hours), including the Morgan Stanley Applied Finance Project, plus an internship or on-site project. Orientation begins in spring, and by fall season, they begin their three-month internship placement, which requires them to apply the skills and tools learned during the first part of the program.
It is hard work that pays off. Ariel Pavlicevich, who graduated from Haas in 2008 at the start of the financial crisis, found himself likely to be in the worst possible timing for someone looking to launch their career.
But he managed to build “a very enjoyable and fulfilling career”, beginning with a proprietary trading firm in Chicago called Spot Trading to his big break in 2011, in which he won a position as Portfolio Manager for Parallax Volatility Advisers.
“It was there that my background as a Software Developer, Quant, and Trader all came together,” he explains.
“I always wanted a career in trading and the Berkeley MFE program brought together my programming background and my interest in finance. The Berkeley MFE gave me the practical skills I needed to transition from a Software Developer to a Volatility Arbitrage Portfolio Manager in just four years.”