What banks want from finance PhDs

The Great Recession may have created a popular backlash against sophisticated financial products, but business schools and banks say that finance PhDs are very much in demand to make sense of the complexity in financial markets.

The only problem, in fact, is getting these PhDs to work on Wall Street rather than going to academia or starting their own hedge funds.

"PhDs will be continue to very much in demand, because the world will get more technical," said Sharon Cayley, head of the finance PhD program at the Massachusetts Institute of Technology's Sloan School of business. "Banks won't necessarily depend on such models to structure their risk, but there will be demand for these brains."

Many holders of finance PhDs these days have a variety of options because most schools graduate only a handful of finance PhDs each year.

Finance PhD programs at major schools are typically highly selective. Nearly 600 people applied for 10 places in the PhD program at University College London last year, according to UCL's Treleaven. The university eventually accepted 16 students.

The finance PhD is a credential often sought more by foreign students, particularly those in France, China and India, rather than by UK or US students. Cayley notes that the majority of the students in one part of the finance PhD program at MIT are foreign citizens.

Perhaps as a result, most finance PhD programs, like those at Cambridge University, heavily tout their research focus and their graduates' placement in university teaching positions. MIT's Cayley noted that the school has graduated 13 PhDs since 2004, nine of whom went to work in academic positions even though for decades banks have "come harvesting our best grads, and the salaries they offer are impressive."

UCL is fairly unusual in that it has welcomed close industry ties with finance and encourages its graduates to hold full-time finance jobs while they finish their degrees; in fact, graduates can graduate in half the time if they hold a job, because the degree is research-based and workplace experiments count.

Conversely, MIT discourages students from working while they study, which could stretch their time to earn a degree to five years or more.

For those quants who do decide to work in finance, banks generally hire to fill specific holes: "[The candidates are] attractive if their specific thesis topic is relevant to what a bank or finance company is looking for," notes MIT's Cayley. Still, banks want well-rounded candidates, said Treleaven, who added that the biggest complaint he hears from banks is "we can find brilliant people but they're only stellar in one area."

A recipe for getting into banking as a finance PhD

The key for PhDs who want to work in investment banking is therefore to broaden their skills beyond narrow research topics to include a broad range of computing, analytics and finance.

JP Morgan has a long list of requirements for its PhD hires, including a mastery of advanced mathematics including probability theory, stochastic calculus and partial differential equations or "exceptional" skills with software and programming languages such as C++, and VBA programming. The bank hires PhDs in areas including quantitative research, fixed income strategy and structuring.

Derek Walker, director of careers for Oxford University's Said School of Business (and a former head of graduate recruitment for Barclays Capital and Merrill Lynch), adds that PhD holders hoping to work in finance should be good communicators. "The personality is also important," he said, "In the sense that they need one."

At BarCap, research divisions showed a distinct preference for PhDs and where candidates were tested on whether they could provide simple-English explanations of their research."

"There's less interest in geeks sitting there doing academic things," said Treleaven, who says many banks have moved their focus on PhD holders away from quantitative research and to more dynamic areas like algorithmic and program trading, or working in areas like cloud computing for technology-focused hedge funds.

Some of the best PhDs, however, often look to strike out on their own by starting their own hedge funds. "I have seen more people doing their own thing," said UCL's Treleaven. "You're talking about the elite of the elite."