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Advice on Pursuing U.S. Finance Jobs For Students in the Duke MEM Program

By Daniel Egger – MEMP Executive in Residence & Director, Center of Quantitative Modeling

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MEM students pursuing finance jobs in the U.S. can greatly improve their outcomes by taking some time to distinguish between the different types of roles that exist under the broad heading of “finance,” and focusing their efforts on those roles where success is most likely for them. Generalizing very broadly, finance industry jobs for University graduates fall into three main categories: Sell-side, Buy-side, and Information Technology Infrastructure.  Below, I discuss each Category, and why I think it is, or is not, a realistic target for MEM students’ job search.

 

1. Sell-Side

Sell-side jobs are those where the ultimate value of an employee to his or her employer is the ability to sell whatever product or service the bank or brokerage firm is currently offering. The key activities in these jobs are, first, developing personal relationships with clients and potential clients, and second, “pitching” these contacts on the sale of whatever the employer will make a profit on each day. For example, your firm may be selling a particular company’s stock or bond, selling a whole Company in a merger, selling a division of a larger company in an acquisition/divestiture, or promoting and selling a new financial product such as a complex derivative. Much of this pitching is done over the phone, so an effortless command of idiomatic English is essential.

Jobs in “investment banking” are essentially all sell-side. Even roles that might appear from their job title to be more analytical and objective, such as “equity analyst,” are actually sell-side jobs. An equity analyst at an investment bank or brokerage firm is creating written materials to give the firm’s sales people relevant ‘talking points’ with potential customers. Very often, the equity analyst will be writing about Companies the firm already represents, or wants to represent, in the sale of stock or bonds. The analyst role exists to support the firm’s sales efforts.

In my opinion, there are two main reasons MEM students do not get hired for sell-side jobs.

First, a skill for sell-side jobs that is most likely to lead to success is found in those who enjoy networking, and find it easy. These individuals are successful at sales because they are naturally suited to the work of building many personal trust relationships rapidly. Again generalizing broadly, Engineers by training and temperament tend to be more introspective, thoughtful, and analytical/judgmental. Engineers tend to focus more on the correct answer than the on making the other person feel right – a quality that may make them excellent engineers, but not obvious salespeople.

Second, the usual “funnel” for sell-side jobs does not provide easy access for MEM students. U.S. students begin preparing themselves to be hired in sell-side finance jobs by the time they are 18 or 19 years old, working in multiple summer internships as undergraduates, majoring in relevant and expected undergraduate subjects such as economics, and networking with classmates and alumni involved in finance. When evaluating resumes, employers put a lot of emphasis on competitiveness and extroverted leadership in non-academic activities, such as competitive athletics and fraternities/sororities. Most starting employees in sell-side roles at top-tier U.S. financial institutions are recruited directly as undergraduates out of a small number of elite, Ivy-League or similar institutions. There is a strongly standardized recruitment “funnel” and alternate paths into it are not welcomed. Recruiters generally resist even considering students who have not pursued the “pre-career” path described above.
There are exceptions, of course, and one or two MEM graduates each year are hired into U.S. sell-side/investment banking jobs – but these are generally students who are (a) strongly extroverted, (b) relentlessly ambitious, and (c) prepared to spend a year or more on their job search beyond MEM graduation.

 

2. Buy-Side

Buy-side financial institutions are those that manage other people’s money for a fee, and sometimes for a share of any profits. Many jobs in buy-side firms involve careful sifting and evaluation of the “sell-side” pitches making the rounds of Wall Street. Most well-run buy-side firms have their own in-house analysts, and do “due diligence,” or independent assessment, on all investment opportunities, including evaluating the performance of other money managers to whom they may delegate certain investment decisions. The best buy-side firms also pursue original investment strategies that they develop in-house, often through extensive data-analysis and back-testing of investment strategies. Buy-side organizations generally specialize in particular financial asset classes, investment time horizons, and money-making strategies. They have many different organizational structures, including pension funds, equity and bond mutual funds, venture capital funds, hedge funds, and trading operations that trade “for their own account” – meaning they aim to profit directly on trades that risk their own capital, rather than making money on commissions for executing others’ trades.

People with an engineering background are actually well-suited to succeed in many needed roles on the buy-side, and many graduates of Duke’s own Pratt School of Engineering work in, and have great career success in, this area. It is a much better “fit” for most engineers than the sell-side. [My own MEM course titled “Introduction to Computational Finance” focuses on buy-side analytical tasks, as well as the criteria used to evaluate and hire money managers]. However, there are still two big obstacles standing in the way of employment on the buy-side for MEM graduates.

First, much of the work of a money management firm involves raising the money to invest, which includes both direct solicitation of investors, and marketing the firm to intermediaries and other “gatekeepers,” such as wealth advisors. Fundraising never stops, nor does the work of managing ongoing relationships with investor-clients. Therefore, many of the jobs at buy-side institutions are actually sell-side roles. For example, someone running a money management firm will spend 80%+ of their time raising money, travelling constantly for face-to-face meetings with investors, potential investors, and clients around the country and around the world, “pitching” themselves and their firm as a superior place to invest, and to keep, one’s money. Thus money management is fundamentally a relationship-driven, selling-oriented business, the same as investment-banking, except the product being sold is oneself: one’s credibility, skill, and track record.  As explained above, by temperament, sales jobs rarely play to the natural strengths of MEM students.

My advice is that MEM students should determine at the outset whether an employment opportunity at a buy-side organization is in an inward-facing, analytical role – for example, performing due diligence on new investments, portfolio allocation and rebalancing, risk-management, or hedging – or is more an outward facing sell-side role – such as investor relations, financial reporting, or a trading role where one is expected to raise one’s own money to invest.

Second, just as with the recruitment “funnel” for sell-side institutions, buy-side institutions that are large enough to do on-campus recruiting have fixed procedures for who they will and will not interview and evaluate, and their focus is on the same pool of Ivy-League undergraduates, using the same criteria, as the sell-side firms. It is difficult for MEM students to get beyond the stage of sending in their resumes to an HR contact, or at most getting a brief phone interview.

However, engineering graduates with an MEM degree who do manage to get face-to-face interviews with practitioners of buy-side roles at buy-side firms tend to do well. This eventual success may be exactly because they are engineers – their thoughtfulness, work ethic, analytical and quantitative approach to problem solving, and evident mathematical and data-analysis skills make them in many ways better at buy-side jobs than candidates from the standard “funnel” or interviewing pool. Therefore, it is essential for MEM students who are determined to get hired in a buy-side job to get to know personally people working in the industry outside of the standard HR/interviewing process. The way that you will be hired is ultimately through mentorship by a successful individual at one of those firms; someone senior enough to have hiring authority and with whom you have developed a personal relationship. Pursuing a buy-side job with a U.S. firm is not easy for MEM graduates, and it is not recommended – but it is not impossible.

Note that the rigid interviewing “funnel” in the U.S for both sell-side and buy-side financial jobs is not at all similar to how MEM students may be hired for comparable jobs in their “home” countries – and in particular in rapidly emerging economic powers such as Brazil, India, and China. The process in many countries is much more fluid and less institutionalized – and there is much more rapid growth, which creates constant demand for new entry-level people. By U.S. standards these countries’ financial career paths are the “Wild West” – full of adventure, boundless opportunity, and risk. A determined individual with an MEM degree can begin a successful career in any area of finance in their home country more easily that they can in the U.S. Instead of being seen as someone with a “non-standard” degree for a finance career, that needs to be explained, you will be seen — more accurately — as someone who has technical training in your own country, combined with excellent English-language skills, exposure to U.S. culture and business practices, and the ambition and energy to obtain a business degree from a top U.S. institution.

 

3. Information Technology (IT) Infrastructure

Many MEM students have several years experience working as software developers or business analysts working on IT projects, and/or have a degree in Computer Science or Electrical Engineering and have also learned to program and/or to work with databases.   These students may have come to the MEM program in part to “escape” from being in a purely technical “coding” role, and so may be initially hesitant to consider jobs in Financial IT Infrastructure. However, five (5) points are worth considering:

First, most IT Infrastructure jobs for MEM graduates lead rapidly to promotion to team-leader and project manager positions. Financial firms are not hiring you to write code for more than a year or so – they need people who can understand both coding and the larger business aims of the organization, and have the “people-skills” to lead and manage team efforts that will involve dozens, or hundreds, of contributors located all over the world.

Second, the financial sector spends more money on IT products and services, both internally and externally, than any other industry. In every aspect of finance, from customer relationships and on-line marketing, to credit cards, to transaction processing and brokerage, to development of trading and trading floor technology, to data security, data-analysis and Big Data storage and processing, financial firms are making massive capital investments in order to remain competitive. Large budgets and competitive pressures create great career opportunities for those who have (or who can acquire quickly) the relevant skills to execute on big plans.

Third, it is a myth that over the long term, people in outward-facing roles at banks and other financial institutions will be paid more than IT infrastructure people in those same organizations. Senior managers – those who assume significant responsibility for large teams – are paid extremely well, because the special combination of skills needed – technical and management ability, combined with specialized vertical-market experience and expertise – is always in short supply. MEM students who go into IT Infrastructure for finance can and should aspire to be Chief Technology Officer (CTO) at a financial institution some day. The relative importance of the CTO, relative to other C-level positions, at banks and other financial institutions is continually rising. Over the long term, (the next ten to twenty years) sell-side and buy-side jobs will largely be phased out and replaced by intelligent computer systems. (See below, A Special Note on Algorithmic Execution and Trading).

Fourth, it is admittedly my personal opinion only, but in the long-term, a career designing and building useful things is much more satisfying work for engineers than a career buying and selling things designed and built by others – and this holds just as true in the financial sector as in other industries.  And job satisfaction is not irrelevant to pragmatic career planning – because people tend to be more motivated, thrive more, and rise faster, when doing work they fundamentally enjoy.

Fifth, MEM students who also have basic software and/or database competencies are hired in large numbers every year by top U.S. financial firms. The same firms that won’t interview MEM students who don’t fit in their “funnel” for sell-side and buy-side jobs use completely different people to recruit and interview for their Information Technology jobs – and those people have completely different criteria for evaluating and hiring students. For example, recruiters for IT jobs are much more likely to understand what it says about you that your graduated from Tsinghua or Peking University, or from an Indian IIT. And from the perspective of these interviewers, the MEM degree gives those who also have a relevant technical background a significant competitive edge in hiring over people who have only the technical background.

Therefore, my advice is to build on your technical background in seeking to work in the financial industry. Compete for those jobs where your unusual combination of skills is competitive differentiation and a big advantage, rather than something unusual that needs to be explained.

A common question I hear from MEM students is: “What if I have only limited software and coding experience? What do I need to know to be competitive for financial IT jobs? My Computer Science or Electrical Engineering, or similar degree does not necessarily mean I have much practical software development experience.”

My answer is that technology, including favored computer languages and tools used to build infrastructure, are changing so fast that the most important skill you can have is the ability and willingness to learn and apply new skills on your own rapidly and with confidence.  If you have never used C++, or Java, or R, or Perl, Python, or PHP, or worked with MySQL or other databases, or used tools like Hadoop – all of these things can be learned on your own using free online tutorials, posting on message boards to ask questions when you get stuck, etc. It is just a question of committing the time and energy to practicing. It is certainly easier than learning to work and write in English, if English is not your first language.  But if you have not learned these skills yet, and the prospect of learning them is not appealing to you – then I would recommend you pursue a different career path.  Over your career, specific computer languages and tools will become obsolete and be replaced – the only constant will be the need to master new knowledge.

 

A Special Note on Algorithmic Execution and Trading

Buying and selling financial assets such as stocks, bonds, and commodities, was once done by brokers gathered together on a physical trading floor. Computer networks made this structure obsolete, and now brokers around the world submit buy and sell orders to multiple exchanges electronically. However, a further level of automation is underway – where the trades themselves are executed algorithmically. Algorithmic execution is superior at balancing market risk and execution risk, and perhaps even more importantly, at obscuring the nature of the trade so that other market participants can’t exploit it. For example, if a mutual fund wants to sell a large block, such as 10 million shares, of a stock that has a normal daily volume of only a few million shares, offering the entire block at once will result in a very poor average price per share. Even just informing the market that the fund wants to sell that many shares over several days will lead to a much worse average price than if the intention of the seller can be kept secret. Computer algorithms break up the 10 million shares into random-seeming sized small lots, scatter their sale over a number of days and exchanges, and perhaps even include a number of buy orders to throw others off the track. Clients of algorithmic execution evaluate the performance of an algorithm by comparing the average price they got for the ten million shares to the last-traded price of the stock before they began selling. Obviously, if the process of selling the full 10 million shares takes too much time, the market price of the stock may in the mean time move down for reasons unrelated to the trade. This is “market risk.” If the selling process is too rapid, selling pressure will drive down the price even if other market participants do not know that the seller wants to sell 10 million shares. This is “execution risk.” Balancing these risks in a classic engineering optimization problem.

A further step in trading automation is when computers are programmed to identify opportunities to exploit small mispricings or arbitrage opportunities through very rapid placement of trades – much too fast for human intervention. The computer is authorized to place orders to buy and sell on its own volition. A very large part of all trading is now driven by one form or another of algorithmic-trading algorithm. One of the key features of successful algorithmic systems is very low latency for decision-making – the computer must be able to receive new data, analyze it, and place and cancel orders in a few thousandths of a second. [An MEM student team that I coach participates every year in a leading algorithmic trading competition, part of the Rotman International Trading Competition held in Toronto Canada annually]. Algorithmic execution and trading is of course just one aspect of financial industry Information Technology Infrastructure, but it is an area where an informed engineering perspective on software and hardware design, combined with basic knowledge of trading and markets, which can be obtained at the Duke MEM program, opens up career opportunities that in the long term will make many of the non-technical “sell-side” and “buy-side” jobs obsolete. The future of finance is with the technologists.


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