DISCUSSION on second rated MFE programs

[DominiConnor]

I agree with the wolf, that a 7 year hole is hard to climb out of.
But...
We do see a trend of people trying to move into finance, without leaving the West Coast.

 

[Tigga]

On another thought, I think MFE programs will start mushrooming to feed endless stream of people jumping into this field.
One undeniable attraction of this career is the very high entry level salary. Just compare it with a fresh PhD who spends 5-7 years and then struggle to find a teaching job in academic with starting salary of 40-50K and no BONUS.
Even an MFE graduate from John Smith State College if he can get a job at John Smith Sate Insurance firm will get 60-70K starting salary.
This is why the guy who got a PhD and teaching somewhere also want to jump in. 70K+ bonus is way better than 50K and no tenure track.

We probably see more of John Smith type of programs. How they train and place the students is everyone's guess. A number of these graduates will be ill-prepared and end up unemployed but the allure of getting a very high entry level salary is impossible to resist.

So wolf,
Regarding your gloomy forecast of the fate of the programs and its students, I don't see the number will dwindle down anytime soon. Probably the number of suckers will grow but it's survival of the fittest

 

[bigbadwolf]

On another thought, I think MFE programs will start mushrooming to feed endless stream of people jumping into this field.
One undeniable attraction of this career is the very high entry level salary. Just compare it with a fresh PhD who spends 5-7 years and then struggle to find a teaching job in academic with starting salary of 40-50K and no BONUS.
Even an MFE graduate from John Smith State College if he can get a job at John Smith Sate Insurance firm will get 60-70K starting salary.
This is why the guy who got a PhD and teaching somewhere also want to jump in. 70K+ bonus is way better than 50K and no tenure track.

We probably see more of John Smith type of programs. How they train and place the students is everyone's guess. A number of these graduates will be ill-prepared and end up unemployed but the allure of getting a very high entry level salary is impossible to resist.

So wolf,
Regarding your gloomy forecast of the fate of the programs and its students, I don't see the number will dwindle down anytime soon. Probably the number of suckers will grow but it's survival of the fittest.

I agree with you (and with DC) that there are a number of people trying to get into finance, partly because of the allure of pay and partly because, well, just about every other sector is either supersaturated or offers crummy pay. So people will be drawn because of "expectation." In the medium- and long-term, though, many of these programs will fold (too many of them, already enough people in the field, and the profession itself probably needing fewer people in the future), and prospective students will become a more cynical lot, more resistant to the siren song of garbage MFE programs offering the moon.

One thing I haven't yet seen is the percolation of MFE material down to the bachelor's level. There's no good reason why it can't be done. Stochastic, C++, simulation, PDEs, time series, and so on can be taught to math undergrads in England, or math upper-division students in the USA. I suspect we'll see more of this in the future (there may already be instances).

Maybe Baruch can take the lead here....

 

[Tigga]

One thing I haven't yet seen is the percolation of MFE material down to the bachelor's level. I suspect we'll see more of this in the future (there may already be instances).

I remember reading a few here discussing about undergrad financial math program
Here is one (set to open Sept 2008) Honours Math Finance
Another is from some university. maybe JHU. Can't remember at this moment
EDIT 1:
People take a shot at this at different angle. Here is an undergrad degree at U Michigan http://www.math.lsa.umich.edu/undergrad/actuarial.shtml

The program in Mathematics of Finance and Risk Management (or Financial Mathematics for short) is designed to provide a broad education in the quantitative aspects of risk management and finance. Financial instruments which are engineered today require sophisticated mathematical techniques for their valuation. These techniques come from the fields of probability, statistics and differential equations.

EDIT 2: Found yet another one
http://www.simmons.edu/academics/undergraduate/mathematics/programs/financial_mathematics.html

Major in Financial Mathematics
Offered jointly with the Department of Economics, this major is intended to serve students who are interested in applying the principles of mathematical and economic analysis in the financial services industry.

 

[Tigga]

In the medium- and long-term, though, many of these programs will fold

How exactly are these programs going to fold ? Quietly fold tents and leave town. Or die a slow and painful death ?
It has much to do with their business model. If a program is a known cash cow which most of them are nowadays, they probably will get less profit.
Consider the ridiculous amount of money they charge for admission, it's a stretch to say they will make do if business is slow.
For example the 2008-2009 estimated cost for a full-time student at CMU will be a cool $110K where $72K is tuition. One must wonder how much is the real cost for CMU to teach these students. Given the fact that many of the newly admitted full-time student there each received a $18K, $24K for a so-called "merit scholarship", it's hard not to question if these students overpay in the first place.

So in this context, you can see MFE is a very profitable business, specially those run by business schools like CMU, UCB, UCLA, Fordham. You have to charge high fee to give the illusion of prestige. The higher you charge, the more people want to jump in.

So for CMU which admits around 70 students a year, it's a cool $7M a year. For that kind of money, they can get Dominic to teach C++, Wilmott to teach Finance, Taleb to talk black swan, John Walkenbach to teach VBA, Shreve to teach stochastic (oops, he already teaches there) and an army of PhD students to tutor the weak students and grade homework.

They only got Shreve there, so there are plenty of money unused. It's not going back to the students, for sure.

and prospective students will become a more cynical lot, more resistant to the siren song of garbage MFE programs offering the moon.

I'm seeing quite the opposite
Student: "I got in CMU with 18K scholarship. How do you guys fund your education?"
Another: "Take a loan, parents' money"

It's amazing to see their reaction to the sticker shock after the initial excitement dies off. And there are plenty of students who don't even flinch paying 100K for one year of education. They must have pretty wealthy parents.

So wolf,
With this kind of money game, are you saying any program that charges an arm and leg for this kind degree will fold ?
A sucker is born every minute, you said ? If the students grow more cynical, the cash cow will milk the less cynical. Did they start the program to look after the student's best interest in the first place ? Absolutely not. Their goal is to make money and to brag about the brand name, top tier MFE program, etc.

 

[bigbadwolf]

How exactly are these programs going to fold ? Quietly fold tents and leave town. Or die a slow and painful death ?
It has much to do with their business model. If a program is a known cash cow which most of them are nowadays, they probably will get less profit.
Consider the ridiculous amount of money they charge for admission, it's a stretch to say they will make do if business is slow.
For example the 2008-2009 estimated cost for a full-time student at CMU will be a cool $110K where $72K is tuition. One must wonder how much is the real cost for CMU to teach these students. Given the fact that many of the newly admitted full-time student there each received a $18K, $24K for a so-called "merit scholarship", it's hard not to question if these students overpay in the first place.

I'm subscribing to the "efficient market hypothesis": that ugly reality eventually catches up with hopes and expectations, and alters decisions. But right now I concede I only have my conviction and not much empirical support. If some of the many MFE programs (and there do seem to be quite a few) don't attract enough students for two or three years in a row, I suspect they'll be quietly folded, and the tents put away. As a guestimate, probably 25+ students are needed for breakeven in a properly-resourced program.

So in this context, you can see MFE is a very profitable business, specially those run by business schools like CMU, UCB, UCLA, Fordham. You have to charge high fee to give the illusion of prestige. The higher you charge, the more people want to jump in.

It's been profitable -- there have been only a limited number of schools and the industry hasn't been able to get enough of them, The students have been told: "Listen, pal, what's the odd $100K in fees, when you'll be earning $150K just your first year, with the sky subsequently the limit?" But now there are many more schools and getting internships (let alone jobs) has become quite an exercise even for grads from Haas and CMU in a lean market. And it looks like the finance industry is going to go through a lean period for the foreseeable future. And I reiterate: any student clever enough to become a quant is clever enough to dispassionately assess the expected return on his investment. So it's an open question as to whether many of these half-assed MFE programs will be lucrative or even profitable.

So for CMU which admits around 70 students a year, it's a cool $7M a year. For that kind of money, they can get Dominic to teach C++, Wilmott to teach Finance, Taleb to talk black swan, John Walkenbach to teach VBA, Shreve to teach stochastic (oops, he already teaches there) and an army of PhD students to tutor the weak students and grade homework.

CMU will remain in business. So will Baruch. But what about Hick State University and Swampwater University, both of which have just proudly announced their own "ambitious" MFE programs, and with the proclaimed intent of becoming among the top five? How long before they retreat from the arena with their tails between their legs? Who's going to pay $40-50K for tuition for badly taught courses from inexperienced and incompetent instructors, which don't lead to internships or jobs?

With this kind of money game, are you saying any program that charges an arm and leg for this kind degree will fold ?
A sucker is born every minute, you said ? If the students grow more cynical, the cash cow will milk the less cynical. Did they start the program to look after the student's best interest in the first place ? Absolutely not. Their goal is to make money and to brag about the brand name, top tier MFE program, etc.

Not CMU, Chicago, or Baruch. But maybe Fordham and UCLA. And almost certainly Hick State and Swampwater. But let's wait and see. You're right, though, that there's no price resistance at the top-tier schools. And perhaps I'm too much a doom-and-gloom merchant.

 

[Seanny]

Even an MFE graduate from John Smith State College if he can get a job at John Smith Sate Insurance firm will get 60-70K starting salary.
This is why the guy who got a PhD and teaching somewhere also want to jump in. 70K+ bonus is way better than 50K and no tenure track.

I am shocked to hear that education doesn't bring any value to the workforce. Though it is true, it sucks for a PHD student to be making less than someone who has a single bachelor's or master's degree. I am going to get my MFE but I think if I were a company... I would hire a math PHD rather than a MFE, especially for a quant position, because they are more quantitatively challenged.

Also, is it true that MFE's make 100k starting salary? isn't that what the undergrads make when they go into banking at a bulge bracket? Shouldn't we (MFE's) be making more?

 

[MikeK]

I am shocked to hear that education doesn't bring any value to the workforce. Though it is true, it sucks for a PHD student to be making less than someone who has a single bachelor's or master's degree. I am going to get my MFE but I think if I were a company... I would hire a math PHD rather than a MFE, especially for a quant position, because they are more quantitatively challenged.

Also, is it true that MFE's make 100k starting salary? isn't that what the undergrads make when they go into banking at a bulge bracket? Shouldn't we (MFE's) be making more?

No one is saying that education doesn't bring value to the workforce, and I think most people would agree that a PhD will have a much more rigorous mathematics background. And there are still a lot of companies out there who will only hire PhD's, and don't want anything to do with MFE's. I once worked at a trading firm like this...I had asked the head of the quant group why this was so, and he said the PhD's have the proven research skills they seek, and they can easily learn the financial math.

Obviously, this was only one company but I'm sure there are still plenty out there. Remember, the market for MFE's is relatively new and with all that is going on in the market now, its hard to predict what will happen. Who knows, maybe the market will be so flooded with MFE's that all of a sudden more companies will demand PhD's. You never know.

And you don't need an MFE to get a good starting financial engineering job. If you had a PhD in math or statistics, you'd have to brush up on some of the financial concepts but you'd easily compete against the financial engineers.

As for the $100k starting salary, that's even a stretch now for MFE grads. I'd guess only the top .0000001 percent of undergrads will command this in a first job; most go back to MBA programs because they are making closer to the $50k average.

 

[DominiConnor]

I agree that a good undergrad course with decent quality students can achieve the same level as a MFE. If you cut out of a maths degree all the stuff that has no relevance to quant work, and shove in financial maths and bit of programming, it could be done.

A big problem would be marketing the graduates, since the market expects MFE/PhD/CQF, many would reject a BSc CV without reading it.

Also, I'm not sure the business model works for the universities, since MFE programs are so lucrative.

Will many MFE programs fold ?
I don't think so.
I am even talking to one school that is starting a new one.
The issue is nearer to accountancy than finance.

The startup capital costs have mostly been paid off (marketing, buildings, linbrary, lab for playing at trading).
I think a programme would only fold if they were perceived to be going to lose money for the foreseeable future.
That would be unlikely.
Finance lecturers simply aren't paid that much. I understand that I am in the right hand side half of the distribution for my CQF stuff, and it's nice but not scary money.
A bit of accountancy comes in here, that as far as I can see the majority of finance lecturers are not full time on a finance MFE. They are "rented" from other departments or some sort of freelancer liked me.
Some faculties have >20 members, but of course not 20 full time staff.

So they could run at half full and still manage to at least break even.
With a bit of cost cutting (losing admin people more sharing of lecturers with other departments) that goes down further. An obvious wheeze is to allow more "working scholarships", ie get in cheap PhDs from other departments like maths or CompSci to take some lectures, and swap this work for MFE designation. That would be a damned attractive proposition for a Physics PhD who wants to become a quant. You could knock 20-25% of the wages bill that way.

So it would require the most catastrophic collapse in the number of students to kill a program.

Also, having sunk so much money in, Unis will be reluctant to walk away just because of one year's poor result.
Also investment by students in education is not so well correlated with the economic state. Some will actually choose a downturn so as to minimise opportunity cost, and others will believe that more education is necessary to compete in a tougher job market.

China is a significant factor here, several MFE programs have reported to me that the number of PRC students applying has been going up. A decline in "local" students may just mean that more of the next wave of entry level staff are Chinese.

My estimate is that short of a depression, the number of MFE students will continue to grow over the next few years, regardless of this current local difficulty.

 

[bigbadwolf]

I am shocked to hear that education doesn't bring any value to the workforce.

If astutely chosen (e.g. MFE), it does "add value." But in the United States, since students have to fund their own undergrad education and professional training, they have to think and act like entrepreneurs marketing themselves, and there's quite a bit of "volatility" in returns. Tends to add to anxiety. Additionally, work across the board is being transferred to lower-cost countries and this shows no sign of abating.

Though it is true, it sucks for a PHD student to be making less than someone who has a single bachelor's or master's degree. I am going to get my MFE but I think if I were a company... I would hire a math PHD rather than a MFE, especially for a quant position, because they are more quantitatively challenged.

So would I. But I would have to train the Ph.D., and after training he might be poached by a rival firm. A well-trained MFE will probably require less-on-the-job training (albeit coming with a more limited math skill set). Also, much of the so-called "quant" work is drudgery and doesn't really need a Ph.D. Horses for courses, as the English say.

Also, is it true that MFE's make 100k starting salary? Isn't that what the undergrads make when they go into banking at a bulge bracket? Shouldn't we (MFE's) be making more?

Those jobs are few and far between. They will tend to go to WASPs with a background of, say, Andover and Harvard. Nepotism and string-pulling is often involved. So if you're a nephew of Bush or Kerry, or your last name is Rockefeller, it will work. It won't work if you're most everyone else, went to Jerkwater High and then Hick State U. Your starting pay will be closer to 50K, maybe even 30K.

That reminds me: if you can, get hold of a copy of C. Northcote Parkinson's "In-laws and Outlaws." The In-laws are those who get married to the Chairman's niece and are subsequently assured of a cosy, senior position. The Outlaws are everyone else, who have to compete on their own merits in a brutually competitive and harshly unfair world. We're all in the second category on this forum: no silver spoon in our mouths.

 

[Andy Nguyen]

Though it is true, it sucks for a PHD student to be making less than someone who has a single bachelor's or master's degree.

People do PhD for "the love of science", not money. Seriously
I think they are all well aware of the paltry salary they will make as a newly minted PhD. This applies to almost 99% of the PhD subjects out there, except those in high paying field, finance is one of them.

isn't that what the undergrads make when they go into banking at a bulge bracket? Shouldn't we (MFE's) be making more?

Those undergrads will go in as first year analysts. Most will not survive the 2 years to become associate. Plenty will go to MBA. And to get in that analyst training program, you probably will have to pay handsomely for some private Ivy universities whom bulge brackets IBs have them as targeted schools.
To get 100K job, I like a chance of an MFE grad than a undergrad.

 

[Yuriy]

I agree with Andy. I've seen many post doc ads for Chemistry, Biology PhDs offering low 40K's as salaries.

Here is a link to RF CUNY job ads (2nd from the top gives 38-40K and requires PhD).
Job Opening

And there are many more ads like these and not many of them give more than 50K.

 

[Seanny]

I guess when I said "it sucks for PHD" ... I meant that even as researchers, or professors, they get paid way lower than a typical undergrad business student. I am simply commenting on today's society where higher education doesn't correlate to more money. I understand that PHD do it for the "love of science" but they work hard to get there... and should be compensated with more than just the happiness of learning.

But yea, sorry, this is way off topic of the thread.

 

[Andy Nguyen]

Allow me to get this back to topic

If I write an article for QuantNetwork about various MFE programs, I would contact them and ask directly about their acceptance, placement stats. What would be the chance of them giving me some juicy data?

I'm feeling a bit uneasy talking about various programs without them giving me some data sets to interpret. At least, we can try to get them on record about these numbers.

Heck, writing a piece about them sounds like something I would do and feature on Quantnet front page. Are you guys interested? What else you want to ask them?

The programs I plan to contact is UCB, NYU, Columbia, Cornell.

 

[alain]

If I write an article for QuantNetwork about various MFE programs, I would contact them and ask directly about their acceptance, placement stats. What would be the chance of them giving me some juicy data?

There is a better chance of being struck by lightning twice on the same day than getting any juicy data.

 

[QNJob]

Sadly, it is very hard to get the data, and what we see is heavily spun.

As for the market value of PhDs, it tells us that quant compensation would have to drop very very hard to stop being attractive.
Entry level academia is often a much more stressful environment than banking, even in the current climate. I see numbers like 10-15% of the industry getting chopped this year.
This is the worst year for ages, but in academia, that would be seen as a good year.

When you go work for a bank or HF, you get a job.
That's not the standard process for a postdoc who typically gets a fixed term contract, with no guarantee of it being extended.

No quant has yet been the top dog in a bulge bracket bank, but thousands of quants have become rich through banking. Quants have been the top dog of hedge funds since before the term hedge fund was first used. Ed Thorpe has been doing this for decades.

Compare this to a Chemist or Physicist at an industrial firm. Your career path does not lead to the top, and that's just not competition. Look at the boards of IBM, GM, P&G, GSK, et al.
All "technology" based firms, yet most of the elite think an electron is the size and colour of a small pea.

As a headhunter, my input data set is of course biased. People who are happy in academia rarely contact me, so I get the malcontents.
But there's a lot of them.
Bureaucracy and internal politics is on average worse than banking.

I would venture there is more "respect" for the individual at even the hardest know bank than the average university.
This is because of the rational response to the different stimuli.
If you quit because you've been screwed, useful and sometimes critical work will stop happening. Obviously GS or UBS is not going to crash because one junior quant has a nice lunch with P&D But, decision making people will suffer if you go far more often than in a Uni.

Like banks, Unis have people who bring in money, but the raton is entirely different. About 3% of the university are in the position where their departure would make the university poorer.
Most would free up funds that the politically powerful people would use for their own projects.

In a bank, it's nearer 20% of people whose loss would impact P&L.

That is not the banks being "nice", just rational.
And of course, I used "average" behaviour. I've seen terrible mismanagement in both sectors, bullying, and other defects.

 

[QNJob]

Entry level academia is often a much more stressful environment than banking, even in the current climate. I see numbers like 10-15% of the industry getting chopped this year.
This is the worst year for ages, but in academia, that would be seen as a good year.

Unless you have tenure at a university, yes. Once you have tenure and are careful to keep your head below the parapet by not saying anything politically or culturally controversial, you have a sinecure for life. If you have a tenure-track position, you have some hope. But for the unwashed masses who constitute today's Ph.D. lumpenproletariat, life is no bed of roses. I think the number of physics Ph.D.s produced each year in the USA is enough to staff all US academic physics departments. In mathematics, in the early '90s, a non-tenure-track assistant professorship at the U of New Mexico (hardly a ranking school) attracted 700 applications. No matter how hard getting quant employment may be, it's a lark compared to get a real academic appointment. And the payscales are, as you've indicated, vastly different. A full professor can often be earning less than six figures in a research university. For those who join the semi-starving army of adjuncts or the army of insecure post-docs, life is much harder.

On top of that, no respect. In 19th century Berlin and Vienna, waiters would obseqiously address academics as "Herr Professor," and Ph.D.s as "Herr Doctor." Those days are long gone.

Too much bureaucracy. Too much in-fighting for scraps of money. The Damocles' sword of cutbacks and retrenchments. So for all these reasons it's no wonder that people like Wilmott, Joshi, and Derman drift into the orbit of quant finance.

By way of anecdote, the full-time faculty members of South Dakota's Mount Marty College were earning barely $20,000 annually in the late '90s (and it probably hasn't gone up much since then); when attending a national conference in Chicago in 1997, they saved money by staying at a homeless persons' shelter (source: the book Academic Keywords, by Nelson and Watt, published by Routledge, 1999)

 

[Andy Nguyen]

Latest press release from UCB (March 31, 2008)
Haas School: NewsWire - March 31, 2008

The Haas School's Master's in Financial Engineering Program welcomed 65 new students this month and bade farewell to the 64 graduates of the class of 2008.

The graduates have received job offers from companies such as Goldman Sachs, Merrill Lynch, JP Morgan, Lehman Brothers, Barclays Global Investors, Shinsei Bank, and Standard & Poor's. Despite a tough market on Wall Street, 80% of the class had received job offers by their March 14 graduation, says Linda Kreitzman, executive director of the MFE Program. While final data won't be available until June 30, Kreitzman notes that percentage is on par with last year. Average compensation is currently at $161,365.

All 64 members of the class of 2008 had winter internships, and some students will re-join the firms where they interned. Andrew Cowan, MFE 08, will return to the Special Situations Group at Goldman Sachs after working there over the program's 12-week winter break. "Only a handful of quants support a group of several hundred professionals," says Cowan, "so we get to try out many different things."

As the class of 2008 enters the workforce, 65 new students began their studies March 24 as the eighth MFE class. They bring a wealth of experience, including work as financial analysts for Bank of America, as operations research analysts for Verizon, and as engineers for Northrup Grumman Space Technology.

The MFE students hail from twenty countries and boast an average score in the 93rd percentile on the quantitative portion of the GRE and GMAT. One quarter of the new students hold Ph.D.s, and 34% hold master's degrees.

 

[DominiConnor]

Being extra critical, I'd call working at S&P a fate somewhere between an assistant circus clown and IT at JP Morgan.

The internship record is good.

 

[Andy Nguyen]

Being extra critical, I would say the internship was before the subprime mess and UCB can't afford to have anything less than 100% on both internship and job placement.

With all due respect to their great, great program, I'm not impressed that they have been able to do that. Just look at their selection of students. They pick those with great academic record and many years of relevant work experience. In short, those admitted are more market-ready.
In this sense, they don't have to work extra hard to put these high caliber profiles to work.

A student profile at UCB may read like this

Graduated from Ecole Paris with major in applied mathematics with a specialization in financial mathematics.
Received PhD in Applied Math from NYU
Worked 5 years on Goldman Sachs derivatives desk

It would be a shock if they have any problem placing students like this. Heck, even Hickvill State College can place a student with this profile as well.

I'm more impressed with some public college who may take in someone like me whose profile may read

Graduated with Math BS, MS from Swamwater College
No relevant experience in finance.
Never actually worked before.
Willing to work hard for money

It obviously has to work much, much harder to make me more job-ready.

So in this context, it's more impressive for a program like Baruch to be able to place its graduates year in, year out. All standard disclaimers applied here.

A high profile program like UCB, NYU, Columbia would naturally attract high quality applicants. The rest of the programs (Hickville included) would have to fight hard to retain top students.