The upheaval on Wall Street means that young MBAs are no longer in demand. More and more hedge funds and investment banks prefer mathematicians, physicists, and software engineers. Have they found a recipe for success? The enormous wealth in the United States over the past decade has changed the world order in a short time - talented young people are getting rich quickly, while older people are looking frantically at the new gold mine - the capital market. However, the boom in capital markets has led to one of the most recognizable symbols of the financial sector losing its value, and that is the Master of Business Administration (MBA) degree.
A Master of Business Administration degree, especially from a prestigious university, is not only a master's degree, but also a membership in a coveted club and a status symbol that opens many doors. Unlike previous generations of workers, the new residents of Wall Street prefer to measure their performance with dollars rather than titles. And like everything that starts in the United States, it is gradually spreading to other parts of the world, and somewhat belatedly to Israel.In a detailed report on this phenomenon, The New York Times argues that the status of the MBA has risen in inverse proportion to the power of hedge funds - those giant financial institutions that have dominated the markets in recent years. These funds often use mathematical models to select their investments, and therefore prefer to send their best employees to study math and physics.Recruiters who hired from hedge funds and private equity firms were the first to notice this change. According to them, many successful Wall Street graduates were no longer pursuing MBAs, and friendships with many of their MBA clients no longer mattered. It is clear, however, that these changes are not a one-way street. As long as employers see the MBA as a prerequisite for promotion, employees cannot afford to give it up. But employers' attitudes toward this degree have also changed.
It's a waste of time and money or not
In the world of trading on Wall Street, there are three main players: investment bankers who provide underwriting and advice; analysts who analyze the state of companies, sectors, and markets; and traders who make trades for financial institutions. In most investment banks, traders with math and science backgrounds are responsible for the big profits, not investment bankers. And traders are less likely to attend business schools.
Perhaps it's science and math education?
One of the main reasons for the growing demand for people with a science and mathematics background rather than a traditional economic education in finance is the growing popularity of quant funds - funds that invest according to computerized mathematical models (quant funds) - that have grown.
The computer has replaced the trader.
Another trend driving changes in the world of trading is the increasing use of computer software or automated trading algorithms. The Aite Group, a financial research and consulting firm, estimates that in 2006, about one-third of stock orders in the European Union and the United States were executed using automated software.
Who needs an MBA?
Meanwhile, the trading floors of banks and investment houses in Israel are operating as usual. For 50-60 traders, a mathematician is needed who can develop models for trading options and bonds and knows how to evaluate new instruments. Banks can run a simple trading floor and buy all the investment instruments from Citi or other banks they develop, but this creates competition and profit leakage. A bank that develops a new product first makes a profit before copying it. In addition, the price of the instrument will be more accurately determined - a process that requires a deep understanding of math - and the bank will be able to lower the price for the client, close more deals, and increase its profits.
Math education has turned from a privilege to a necessity.
We are seeing an influx of scientists into the financial world - they are giving up careers as researchers in the hard sciences, such as physics, to go to Wall Street, where they will head up the exotic options trading department. Yesterday's scientists are now founding companies that specialize in options valuation models. They are among the 40 most influential people in the world of electronic trading according to Institutional Investor magazine, and confidently take their place alongside such officials as vice presidents of huge corporations for technology, space research, etc.