Rise and Fall of MFEs

[DMX]

I know there are numerous topics regarding oversupply of MFE grads in the current market, but what are people’s thoughts of quant finance going forward?

My observations:

- Most MFEs enter into the program to go into quant trading / quant research
- Trading jobs are shrinking at a rapid rate. Most quant research positions require phDs (and the one’s that don’t require phDs are more or less glorified IT positions)
- Even for the coveted quant research positions, most of the models are already established, and banks aren’t too keen on adopting some cutting edge, complex model versus an established one (I work at a BB and some of our commodity traders are still using Excel-based “models” to obtain trade signals)
- While risk management is another viable option that is quite “hot” these days (in fact I see a lot of MFEs in risk), I don’t see it booming (given that the trading desks whose risks you are supposed to manage are shrinking).

Despite the above, top talent will always find good gigs, but what about the average MFE graduate who shelled out 50K? This is also compounded by the fact that a good majority of people in an MFE program have no previous finance experience.

These are observations of just an analyst who’s been in the industry only for a few years, but what do more established people (Dominic, Ken etc.) think?

 

[mfegrad]

i'm not one of the mentioned people, but here's my $0.02.

you ask about the average mfe graduate. their outlook is dismal.

if you assume, for a moment, that students are (numbers-wise) distributed uniformly across the approximately 100 programs in the us alone, you're throwing out 95% of the students already. then, there are those at the top programs without any relevant work experience and there are those who haven't put any thought into why this career (other than "oh i want to make money"). so you've cut out 60% of the remaining students, so you're really looking at the top 2%...nowhere close to the median.

granted, you will have a few diamonds in the rough from unknown schools who will do extraordinarily well. but the above is the way i see it. and, yes, there's a glut, but there's no sign of it stopping...schools earn full-tuition for these programs and there's a constant supply of students who want to get rich quick and haven't done nearly enough soul-searching.

 

[IlyaKEightSix]

You do math. You do programming. You learn how to try and model crap that isn't very easily modeled.

And you think finance is the only place to use that?

 

[Ken Abbott]

I know there are numerous topics regarding oversupply of MFE grads in the current market, but what are people’s thoughts of quant finance going forward?

My observations:

- Most MFEs enter into the program to go into quant trading / quant research
- Trading jobs are shrinking at a rapid rate. Most quant research positions require phDs (and the one’s that don’t require phDs are more or less glorified IT positions)
- Even for the coveted quant research positions, most of the models are already established, and banks aren’t too keen on adopting some cutting edge, complex model versus an established one (I work at a BB and some of our commodity traders are still using Excel-based “models” to obtain trade signals)
- While risk management is another viable option that is quite “hot” these days (in fact I see a lot of MFEs in risk), I don’t see it booming (given that the trading desks whose risks you are supposed to manage are shrinking).

Despite the above, top talent will always find good gigs, but what about the average MFE graduate who shelled out 50K? This is also compounded by the fact that a good majority of people in an MFE program have no previous finance experience.

These are observations of just an analyst who’s been in the industry only for a few years, but what do more established people (Dominic, Ken etc.) think?

True - I fear many are sold a bill of goods.
True - And they're from the same 5 schools. If you're not from MIT or Cal Tech, good luck.
True - I don't see a lot of bleeding-edge stuff anymore.
Not necessarily. Regulatory demands have caused many risk groups to double in size. There are also jobs in price review model validation, and audit for the same reasons.

 

[AV-Wolverine]

Not necessarily. Regulatory demands have caused many risk groups to double in size. There are also jobs in price review model validation, and audit for the same reasons.

Are these other booming fields enough to make these MFE degrees still valuable?

Thanks to the OP and others for raising this question about MFE marketability. It's a very valid discussion and I'm glad I'm reading this now before joining a program for $50k. I see revelations that run parallel to people pursuing exepensive law programs in an industry with too many qualified lawyers.

 

[DMX]

Not necessarily. Regulatory demands have caused many risk groups to double in size. There are also jobs in price review model validation, and audit for the same reasons.

Agreed (I actually used to work in Risk for your bank and I remember that virtually every other meeting was to discuss/respond to some new Fed request. Somewhat of a hyperbole, but not TOO far from the truth). I guess my rebuttal would be, how much of your MFE degree would be utilized in these types of roles? I remember Ken you said that you should be doing quant finance because you enjoy solving hard problems (and not solely for $$$) - do you think these jobs present enough challenges to require you to use the skills you gained from an MFE degree? I fully realize that this is an endemic problem for most non-academia type jobs - for example on my desk there are many math/physics phds and their day-to-day functions are definitely 'below' them in terms of analytical rigor. Haven't dealt with model validation much so maybe they are much more quant than the groups I've dealt with, and if I come across as snobby I apologize.

You do math. You do programming. You learn how to try and model crap that isn't very easily modeled.

And you think finance is the only place to use that?

I think this ties somewhat into the nomenclature of the MFE degree pidgeonholing you into finance. I am actually looking to move out of quant finance into more data analytics, but a lot of recruiters have told me that my resume/education is 'too finance'.

 

[DMX]

Another issue I have with risk is the 'risk-management-via-limits' framework. For example, there may be some heavy quant work involved to get the VaR numbers for (say) an exotics desk, and most of this is monitored through VaR/Greeks/stress-test limits. But there is no rigor in setting such limits (and most often these are nice, round numbers like $50MM).

 

[DMD]

My view is that an MFE is probably not ideal for people with little financial intuition and motivated only by the $$$ in the horizon. On the other hand, for people who have been interested in finance for a few years and not for the money but are actually passionate about it, I think an MFE provides you a terrific opportunity to learn some very valuable skills that can set you apart from MBAs. Bottom line: don't do an MFE because you're physics degree yields you 60k/year but you want a Ferrari, do an MFE if you're passionate about finance and want to give yourself a competitive advantage. The former may have trouble landing jobs, the latter wont.