April 4, 2003
Beyond the
Hedge: MBAs Explore One of Finance's Most Secretive Enclaves
Keynote speaker Lindsey describes encouraging
prospects for MBAs
By Tom Gerrow
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Austin – An air of mystery tends to surround hedge funds. In their aggressive pursuit of portfolio performance, they are known for holding short positions or derivatives and are sometimes highly leveraged. They are a small but growing sector in the securities exchange industry, and their relative success in the recent bear market has generated increasing interest. But since most hedge funds tend to keep a low profile, information about the industry can be hard to come by.
So perhaps it's not surprising that more than 150 people were willing to travel to Austin from across the country for the inaugural Texas MBA Hedge Fund Symposium, held at the Driskill Hotel on March 28. Industry professionals from Chicago, New York and Dallas attended representing Goldman Sachs, Merrill Lynch, Salomon Smith Barney, Banc of America, and other key players in the securities exchange industry. The event attracted MBA students from Duke, MIT, Carnegie Mellon and other top-ranked business programs in the U.S. and Canada.
Over the last two years, as financial services firms have laid off analysts and scaled back recruiting efforts for new hires, MBAs seeking an edge in the job market have increasingly turned to hedge funds, long known as one of finance's most secretive enclaves.
The message for MBAs from keynote speaker Dr. Richard Lindsey, president of Bear Stearns Securities Corporation, was encouraging: the significance of hedge funds is on the rise, he said, and greater prospects are on the horizon for MBA graduates seeking the experience necessary to enter the industry and its affiliated service sectors.
Positive Outlook
"There are $650 billion roughly, world-wide, in the hedge fund industry," Lindsey said. "In the United States, in the traditional institutional investor market, there is $20 trillion of investments. So the hedge fund industry itself is a relatively small percentage of that overall investment portfolio on the street."
But the importance of hedge funds to the securities exchange industry is increasing. Lindsey pointed out that hedge fund revenues to the street are somewhere around $4-5 billion. "Hedge funds represent somewhere between 10-15 percent of the total revenues for the street. So it is a substantial, sizable portion of revenues and a growing portion of revenues for most houses," Lindsey said.
Lindsey also pointed out that the perception of hedge funds as mavericks in the marketplace has been overplayed. "Thirty percent of hedge funds use absolutely no leverage at all. They are a pure long, and so are much like mutual funds. A typical hedge fund, on average, uses leverage of about 3-to-1. Contrast that with a commercial bank that typically runs a leverage of 10-to-1, and a typical securities firm or investment bank that runs at a leverage of 20-to-1," Lindsey said. "So hedge funds as these wild, outlying, highly-leveraged entities is nice press, but it's probably not the real fact."
He also offered advice to those seeking to enter the industry. "People in hedge funds normally have a depth of experience," Lindsey said. While it might be difficult to enter hedge funds directly upon graduation, he said, "Within the securities firm there are tremendous opportunities to work with hedge funds, and tremendous opportunities to interact with them and become much closer to them as time goes by, maybe with the opportunity of crossing that line."
The Texas Edge
Stephanie Stephens, vice president of Banc of America Securities in Chicago and a McCombs MPA '94, agrees. "There is a lot of money coming into the hedge funds industry," she said. "There are so many opportunities out there and I think hedge funds will continue to grow and need good people. And Texas MBAs are the best."
Stephens may be biased, but there are good reasons to believe that McCombs graduates are ahead of the curve. The school offers an array of market-driven initiatives in finance that help students master the specialized skills required in today's complex securities industries.
"The field of finance is very broad, so the skill set that students need for different areas of the profession can vary significantly," said Michael W. Brandl, a lecturer and macroeconomist in the Department of Finance. "We have programs that focus on energy finance, real estate and private equity. Now, through this organization, we are developing a better relationship with the hedge fund industry as well," said Brandl.
For students who may not be familiar with hedge funds, Brandl believes that the symposium offers a chance to learn about the industry and perhaps clear up misconceptions. "It's one of the best ways to get information to students about the opportunities that exist in the field," Brandl said.
The event also offers a valuable networking tool. "If their careers take them into the hedge fund industry, graduates can come back and relate their experiences to future students. Working with alumni in the industry also helps us, as faculty members, determine what skills students need to be successful," Brandl added.
Network Effects
The long-term relationship alumni develop with the school plays an important role in developing the talent of future graduates, and it was crucial in making the hedge fund symposium a success.
"I don't think this event could have taken place at any other school," said Holly Goodrich, president of the Texas MBA Hedge Fund Organization. "The alumni support was incredible." Goodrich noted that more than 26 alumni attended the event, networking with students who were eager to learn about job prospects in the business.
Today, when hedge funds are extremely limited in their marketing efforts, the industry relies on personal relationships and networking more than most sectors in financial services. This is perhaps one reason why the symposium attracted more than a dozen representatives from regional companies, in addition to representatives of national firms and scores of MBAs.
"The hedge fund community is very supportive of one another," said Henry Harris of Skylight Capital Management, who was a manager for the MBA Investment Fund, LLC before graduating from McCombs in 1998. "There is a lot of interplay between members of the community. They won't necessarily discuss what particular positions they have at any given time, but they are pretty free with their advice and their willingness to discuss what's going on in the market environment."
That willingness to share information made a favorable impression on students who attended the symposium.
"I think they've given a great overview of hedge funds and the industry, and what you do day to day. I think it has brought a lot of people up to speed," said Bryan Lemmerman, McCombs MBA '03. "I didn't realize that hedge funds, which make up such as small percentage of capital, make up such a large percentage of the revenues of securities firms."
Ben Thomason, an MBA student at Duke University's Fuqua School of Business, agreed that the event was a success. "It's definitely been a good experience learning about the hedge fund industry. It's just been a great opportunity to meet the people here," he said.
For more information visit the Texas MBA Hedge Fund Organization or email event organizer Holly Goodrich.
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
