Have MBAs Lost Interest in Investment Banking?
When you picture an investment banker, you probably imagine someone who wears tailored suits and smokes rare cigars. They drive sleek cars and live in swanky pads overlooking the East River. They spend their weekends at the Hamptons and holiday in the Riviera. Sure, they work 14 hour days, broken up with just a quick meal (and an even quicker workout), but the rewards are outrageous! Who could resist?
Well, business school graduates, for one. No longer are MBAs slaving away to become masters of the universe. That’s the theme of a recent piece in The Economist, where MBA placement in investment banks is beginning to freefall.
For example, over 20% of graduates from Booth, Wharton, Harvard, INSEAD and the London Business School chose investment banking (and nearly 45% picked finance) in 2007. Fast forward six years and that number had shrunk to nearly 10% for i-banking and 30% for finance.
So what’s fueling this change? For starters, graduates are being drawn to other industries. Take the University of Chicago’s Booth School of Business. From 2007-2013, students entering investment banking dropped from 30% to 16%. At the same time, Booth MBAs scoring jobs in the tech sector doubled from 6% to 12%. And that’s not by accident, with Millennials seeking greater impact. “Many students want to be part of an entrepreneurial environment and make an impact, to feel they are building and shaping something,” says Julie Morton, Booth’s Assistant Dean for Career Services and Corporate Relations.
Private equity is another avenue. Students have traditionally used investment banking experience to slingshot into becoming money managers. In the past, The Economist reports, hedge funds and private equity funds pilfered talent from investment banks. Now, they’re beginning to recruit on campus, often accepting students who started in investment banks after earning a bachelor’s degree. And such firms – described as “more entrepreneurial” and “hands-on” by one Kellogg grad in the story – provide graduates with the background to start their own companies (an aspiration shared by 26% of MBA students according to the GMAC).
This entrepreneurial theme also carries over to consulting, which has probably gained the most from investment banking’s struggles. At Booth, for example, consultant hiring rose from 24% to 31% from 2007-2013, nearly double that of investment banking. And that’s not by accident.
For starters, consulting and investment banking both pay six figures to start. According to a new survey from The Economist, “less than 5% of respondents said that higher pay was their most important consideration when deciding to enroll at business school, far behind factors such as “to open new career opportunities” (58%) or “personal development” (15%).” As a result, the biggest paycheck only appeals to a fraction of the student population. With more MBAs wanting to shape their own careers, The Economist points out that consulting offers far great appeal than investment banking:
“Whereas banks expect MBAs still to be with them in five years, consulting firms ask recruits: “Whom do you see hiring you in five years?” Encouraging them to think about life beyond the firm has several benefits, consultants believe. It attracts the strongest candidates and it gives the firms a high-powered network of alumni who may become future clients.”
Investment banking is also suffering from an identity crisis. The Economist notes that regulations have slashed bonuses for money-driven i-bankers. Even more, the industry is dogged by its cutthroat, 24×7, lunch-is-for-wimps reputation. And investment banks are responding, with Goldman Sachs cutting back weekend hours to promote better work-life balance for example. However, investment banking’s mission seems at odds with many MBAs’ ideals:
“MBAs also seem to have discovered a sense of moral purpose. At London Business School the fastest-growing student society is something called the “Net Impact” club, says Lara Berkowitz, a senior career adviser at the school. This means thinking about how to build careers that have a positive impact on the world around them, such as running ethical-investment funds or corporate-social-responsibility programmes.”
Some investment banks, such as Goldman Sachs, are rebranding themselves as ‘kinder, gentler’ firms where MBAs can do good and make a difference. Others, The Economist writes, are simply plucking the brightest undergraduates, with “the belief that it is more productive—and better value—to develop cohorts of junior analysts in-house, rather than those with fixed ideas honed on expensive MBA programmes.”
Regardless, the times they-are-a-changin.’ And it’ll take more than big bucks and clever re-branding to bring back the whiz kids from the pre-recession heydays. But these trends run in cycles. When the next tech bubble bursts or the next Bernie Madoff tanks a hedge fund, expect MBAs to warily retreat back to investment banking…where they’ll be welcomed back with open arms.
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Source: The Economist