What Skills Should Finance Students Seek To Acquire In School?

What are the exciting areas in finance? What career paths should students consider? How do current economic conditions affect these career paths? What skills and courses should students focus on?

Every year early in the fall, we at Columbia Business School, run a faculty led panel where we get together to talk about hiring trends and skills that we are hearing about especially in finance, banking and investing related jobs. The audience is predominantly MBA students and students getting a masters in fundamental analysis or financial engineering.

Faculty are usually asked to touch on the following five questions:

What is most exciting about what is happening in your particular area/industry/sector of focus right now (paraphrased as “area” later)?

What kinds of career opportunities/paths do you encourage students to consider in this space (“paths” later)?

What is your perspective on how current economic conditions are impacting the space and hiring opportunities (“economic conditions”)?

What should students be doing now in school to best prepare for a career in this space (“skills”)?

What courses and other curricular/co-curricular opportunities do you encourage students to consider (“courses”)?

This year, I thought I’d do something different. I put these questions to four of my friends on the Street with different functional titles and backgrounds (ex-head of Analysis for one of the bulge-bracket banks, Head of Client Services at one of Europe’s largest banks, top consultant, and the Head of research of a very large passive asset manager).

Here are their thoughts on these questions. I add my own take later in the piece.

Ex-head of analysis for one of bulge bracket banks

Area

I would define my area as Research – both Buyside and Sell side. To me, the most interesting trend is the increasing use of quantitative tools in non-quantitative areas like fundamental research. This includes data analysis of unstructured data sets, better behavioral tools around forecasting and general use of alternative data.

Paths

Developing coding and statistical skills to augment traditional research skills.

Economic conditions

The recent market volatility demonstrates that the ability to generate alpha in developed markets is almost non-existent. Most successful asset managers are really just beta miners. Asset owners will be less willing to pay for this type of investing in the future.

The successful investors of the future will combine alternative data analysis with risk/reward frameworks that provide decent risk adjusted returns.

Skills and courses

One answer for both questions. Coding, data analytics and probabilistic skills are areas for students to study in preparation for future careers.

Head of Client Services at one of Europe’s largest banks

Area

Torn here between pull factors such as the global macro backdrop/geopolitical issues and push factors such as business level initiatives around Sustainability and Digital Transformation

Inflation and supply side issues are presenting real issues and making post pandemic and post lower for longer/QE (quantitative easing)/stimulatory actions far harder to unwind.

We will see extreme dislocations between asset classes and even within single asset term structures and yield curves as monetary policy attempts to address a problem it can’t really address.

Paths

As an industry, we are going to be very focused on all aspects of our business and how we can utilize current and future technologies to improve our front to back business processes and reduce operational costs. Data will continue to play a bigger part in all aspects of our business and we will begin to assign higher value to anything we can capture or create that can provide better signals as to client demand or logistical bottlenecks. As such, we will continue to look for candidates with quantitative and computational skill sets – think of us as much as technology companies as financial service companies.

Economic conditions

Current environment will have an impact on hiring – at all levels – we are seeing a marked slow- down in primary capital markets and this will impact all parts of the business- both public and private. However, do not let that put you off – there is no right time to join this business and it is inherently cyclical.

Whatever the current outlook the areas of the business that are going to continue to grow and need talent will be ESG/Sustainable Finance /Carbon and all things related to it -(Compliance/Voluntary/Reduction/Removal/Offsets)

Private markets will continue to grow and will require skills in accountancy/ structuring and financial analysis

Skills

If in doubt as to how to equip yourself – whatever your major – take a course in Python, learn how to organize and present data via Tableau etc.

Read a quality periodical such as The Economist.

Courses

See earlier comments re Python. Would also encourage participation in any campus based financial societies. Learn about the political economy and keep a close eye on global macro economics

Top consultant

Area

Coming at this from the consulting rather than the banking perspective, ESG is all the rage. I think the key thing is not only is this a great business opportunity but being involved in making this a success is giving our people a purpose. Not that being a vital part of the financial reporting ecosystem isn’t important, I think it is just much more abstract for our people than ESG.

Economic conditions

The economic clouds are clearly darkening and we are seeing it in the transaction space for sure. In the consulting area, this only adds to the appeal of ESG as it is not cyclical. As an aside, the academic community could really help everyone calm down a bit about inflation. Remember the then huge Gulf Oil LBO happened when the risk-free rate was well into the double digits.

Skills and courses

In terms of advice, I get this all the time. In order to be a trusted advisor, you need to have a base level of knowledge about a lot of things. This means you need to read. This allows you to connect the dots on the fly in meetings with clients, prospects and other forums. Anyone can look things up. What is critical is that when something is raised you have something substantive to say.

Here is my example. I went into a meeting on a deal. Due to confidentiality, no information was provided in advance. It turned out it would be the biggest deal in an Eastern European country ever. I knew enough about that country, but it is a tiny country and not in the Euro zone. So, this deal could actually freeze the financial plumbing in the country if they tried to execute it in the local currency. This built a lot more credibility than saying, it would be challenging to do a deal in Eastern Europe or some other vague statement like that. In terms of courses, the right balance between deepening your knowledge in your specialty and broadening your knowledge base.

Head of research of a very large passive asset manager

Areas and skills

On exciting areas, I would say voting choice/advances in proxy voting, and at the analytical end I would say natural language processing (NLP).

On schooling, it almost feels like a blend of law and data science with an emphasis on NLP. Especially an ability to do multi-language NLP. I can definitely say that text from China is very different…both because of linguistic differences and differences in the press and disclosure environment.

My take

I spent most of time chatting with CFOs (chief financial officers), top analysts interested in fundamentals work and folks interested in ESG. Here is what they would like from us and our students:

CFOs

The ability to zoom into details and zoom out to understand whether the issue being discussed is material to the business and how it furthers or weakens the strategic direction in which the firm is headed.

They are consistently frustrated with data scientists. Most of them don’t understand the business context and are rarely able to ask the “so what” or “what next” question. Many data scientists are not able to make the leap from doing “academic” work to work that helps the company make better decisions. One CFO told me, “data scientists I have seen seem to say, “Oh, there’s a microcosm of an academic environment. I can keep asking academic questions that are interesting to me.” How is it monetizable? That is what I want to know.”

Fundamentals

Most “research” that gets done is either highly commoditized or naively extrapolates the recent past adding to return momentum we see in markets. By commoditized, I mean something that is not on CAPIQ and Bloomberg terminals in an easily digestible form is considered unimportant. Folks are rarely trained to go into the primary documents to think about whether and how the business is financially sustainable. The deep analysis that gets done in a P-E (private equity) kind of framework where we ask who buys the product, why, can we deliver the product to the customer, what is the talent available to deliver the product to the customer, how do costs behave, what to do with capital structure, how does management get paid and how do these pieces fit together is rarely seen any more for publicly traded companies.

ESG

The ESG world is over-populated by folks with backgrounds in development economics, non-profits and NGOs. There is a crying need for students and professionals who are skilled in accounting, financial reporting, a basic sense for economics, finance and law and how these skills interact with the development folks to have economically meaningful impact, both on the business and society in general.

Your comments, both from the perspective of finance students and senior folks interested in hiring these students.