For one reason or another we receive a large amount of email regarding Doctorate degrees. The title of the post is direct, a bit mean and for better or worse absolutely correct. If you have a PHD and want to work on Wall Street, no one cares. Now that you’re paying attention we’ll go ahead and break down every division in finance and why you will never need a PHD in Wall Street. Unless this dinosaur industry changes entirely, you’ll never need anything beyond an undergraduate degree, at most an MBA to work on Wall Street because Wall Street is a relationship business.
Investment Banking: In short terms investment banking is a real estate agent for companies. If you want to buy a house you hire a real estate agent and if you want to buy a company you hire bankers. That is plain and simple. Now why would you ever need a PHD for this? You don’t. In fact if you have a PHD it will be harder for you to ever enter investment banking since you have spent 4 years acquiring a skill set that is not useful for investment banking. If you must get an MBA, which we suggest you avoid, that is the maximum education level you will need.
Again the reason is simple an MBA is a networking opportunity. Your job as an investment banker is to build relationships and help fund them (capital raises) or sell them (M&A). An MBA would give you an opportunity to build out this network and shows some dedication to building bonds. Your PHD study in XYZ does not generate money for any investment bank.
Sales and Trading: Here again a PHD does not matter and shows a fundamental misunderstanding of the work that is done on Wall Street. In a Sales role you are calling hundreds of clients, you are in charge of managing soft touch relationships on a very large scale. You’re assigned a sector (space) or region (say Texas) to cover and you’re now responsible for helping the firm maintain relationships in these regions to generate trading volume.
Again here, having a PHD will make it harder for you to get an interview because your skills do not generate money for the investment bank.
Hedge Funds: Long Short Equity? Merger Arbitration? Macro fund? None of these jobs require or have a need for a PHD. On paper they will see a person who is overly qualified from an educational stand point. What does this mean? Now they are now concerned that you have a boxed view of the world. For the most part they are likely correct as you’re trained in the scientific method and have a structured thought process that they likely do not need.
Here again, how does your PHD help the hedge fund make money? It doesn’t.
Equity Research: Here you’re doing niche work covering specific sectors, Industrials, Technology, Medical, Financials etc. Perhaps here the value of a PHD would shine in terms of product differentiation? Unfortunately not. Research is essentially the marketing arm for an investment bank and is a liason between the buyside and C-level executives. There is no need for a PHD for this type of analysis and relationship building.
If you do not believe that Equity Research does not require a PHD then simply look up the financial analysts on TV. You will see again that the maximum education level is an MBA. Your PHD does not help you develop relationships with C level executives and again does not help you generate money for the firm.
(** Small caveat is for the Medical division, here there may be some use for specific PHD’s but the point is that is not by any means necessary to move up on Wall Street and you’ll likely get very few extra points for having a PHD since again the job is a sales role)
Corporate Development: Here you’re working for the M&A division within a large company, lets call it Fortune 500 for simplicity. Your job is to find strategic acquisitions, as an example look at small $10-100M companies that a company such as Google could acquire. While you need to understand what products and services each niche company offers your job does not entail product testing. In that case, the product will be run by the R&D team not the finance team.
In this case what would be of most value? You guessed it, again the most valuable and easily transferable skill would be financial modeling which could be done in investment banking, equity research, hedge funds, private equity and otherwise. Your PHD does not help the firm make money and you would likely be better suited for the R&D team.
Private Equity: We have used an example, a fixer upper house, to explain the private equity model. Your job is to find companies that can be acquired with debt and subsequently be sold for a profit ~3-5 years down the road. A strong candidate for private equity would have a solid foundation in financial modeling, reading sales memorandums, creating debt structures and of course building relationships. This is exactly why an ex-banker is the best fit for the role, they spend their time building relationships and building financial models.
If you have a PHD, again this does not help the Private Equity fund make money.
Mutual Funds/Fund of Funds: This is the last major pillar within finance, as noted by our networking map and again a PHD is not necessary. Here you’re taking (most likely) long-term views of an entire company and are calculating the associated risks to build out major portfolios. Perhaps you’re more focused on running the consumer portfolio, or you are in charge of dividend only stocks, at the end of the day your job does not entail creating a product/service (products/services from a business perspective, not a financial services perspective).
Your PHD does not help any mutual fund make money.
Final Caveats and Thoughts: Notice we have italicized the main point of the article several times, finance and Wall Street is about generating revenue and subsequent profits. If your PHD is not going to help the firm make money they will have no use for your niche skills. With this in mind there is only one space where a PHD would be necessary – working as a high level quant. The rest of Wall Street, again 99% of the industry, would need at minimum a bachelors degree and at maximum an MBA.
Finally, if you do not believe any information within this post you can prove this thesis out by yourself 1) sign up for a premium linked in account and find all the Managing Directors in finance across Investment Banking, Private Equity, Equity Research and Sales and Trading, 2) search out Portfolio Managers in Hedge Funds and Mutual Funds, 3) search out Corporate Development Heads. Across the board you will see the same theme, the vast majority will have high level undergraduate degrees or MBAs from top tier schools.
To end this post, always ask the following questions before you decide to pursue a higher education or any degree. “Will a company value my acquired skill set? Will my degree help me generate long-term profits for the firm?” If the answer is a no, don’t be surprised if you don’t receive any interviews.
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For the long-term readers you’ll notice we get annoyed by all the PHD questions. The reason is as follows: 1) we have covered this topic numerous times on twitter, 2) our myths about Wall Street post explained that complex math is not needed, the most complex formula will be a DCF, CAGR, WACC or CAPM which is a dead giveaway that a PHD is not needed 3) Wall Street is a sales job, 4) the biggest reason – if you believe a PHD will make you more attractive to an employer on the Street you have not done your research and do not know what your job will entail (this topic has been covered numerous times on the blog).
