Do You Need An MBA To Move Up In PE?

Do You Need An MBA To Move Up In Private Equity?

“Three-and-out.”

That’s not just a baseball term. At some companies, that’s been a personnel mantra. You get three years to get into management. If you don’t, you start receiving those subtle pushes that it’s time to leave. Forget know-how and loyalty. Many managers believe the world is full of glue players. And young employees who haven’t hit their ceilings are hard to resist.

At private equity firms, the “three-and-out” principle once skewed towards business school. To move up, young Turks would head to business school to round out their skills and build their networks. Some PE firms even welcomed back these rainmakers back after they earned their degree. Now, that has increasingly changing, says Michael Goodman, a managing partner at Long Ridge Partners, a recruiter for PE firms and hedge funds. “Over the past decade or 15 years it’s gone from a must-have to a nice-to-have.”

This week, the Wall Street Journal reported that times are indeed changing, with rising tuition costs and an increasing number of executives climbing the ladder without an MBA.

Stephen Schwarzman, the CEO of Blackstone, straddles the fence on the issue. While Schwarzman holds an MBA from the Harvard Business School, he has two potential successors — Joseph Baratta and Jonathan Gray – who didn’t earn theirs. On one side, Schwarzman points out that many employees hit the proverbial “ceiling” after five years and need a little more “maturity and some breadth” that comes with an MBA. However, he concedes to the Wall Street Journal that it isn’t for everyone. “Every once in a while you get someone who’s so self-actualized, such a natural athlete, that they can…use the firm as their university…Jon [Gray]’s got a gift, and obviously an M.B.A. wouldn’t have improved it much.”

And Blackstone isn’t alone in this regard. At firms like KKR and GTCR, the upper ranks feature several potential successors and major players who didn’t complete an MBA. And young staffers have taken notice of this trend at their firms – and others.

And they should. Wall Street Journal research shows that the opportunity cost of a leaving a private equity firm, coupled with paying for tuition, can cost nearly $1 million dollars. And, as the Journal notes, there is no guarantee that MBAs will get the same – or a high-paying – job after graduation. As a result, many hedge fund monkeys are having second thoughts about heading back to campus. “They go from having one of the best jobs in the world to just another guy or gal in a pool trying to get a private-equity job,” says Craig Bondy, a managing director at GTCR. “That’s a risk many of them are questioning and saying, I don’t really want to take.”

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Source: Wall Street Journal