We already gave our initial thoughts on the CFA and the MBA and luckily those that work on Wall Street understood the underlying message. If you make your firm money you will not have to obtain either. With that post out of the way we also provided a map of the jungle that is Wall Street.
We posted several answers to questions on the posts above but overall, people seem to get the point. Unless you’re really at the top of the food chain, using the map will help you jump around the Street like a pinball machine. We have a few commenters who work on the Street that want to hammer home the importance of being a PM – which is true and of course we agree. However, we’re going to stick with the Map to help explain how a CFA or MBA can help you accelerate or decelerate your career in each field. Starting with the most prestigious positions.
Hedge Fund Manager/Long-Only Portfolio Manager: The holy grail of all market based positions (Capital Group, Citadel, Fidelity, Soros etc.). We would comment on how to obtain a slot here but unfortunately none of our writers are pulling in 8 digits a year balling out of control. For fun, some of us have interviewed at a few of the names listed in the parenthesis and needless to say the credentials needed are immense (for a leg up try building and selling a Company or having a successful PM career at another name brand firm). With that aside, if you can land a spot here, you have no need for this website and have no need for any life advice at all. You’ve already won the game of life. With that said lets move on to looking at alternative positions on Wall Street…
Hedge Funds: Today, many entry to mid-level positions actually come from starting your career in Investment Banking. The downside, is you cannot spend too many years on the Sell-side before you’re pegged as a “sell-side lifer”. Knowing that, as of 2014, more hedge fund careers are started by flipping from Investment Banking. Finally, we also note that most of these hires are actually ex-Investment Banking Analysts and not Investment Banking Associates. The lines are quite blurry in this space because you can certainly jump from Equity Research or other sell-side positions to a hedge fund, but we’re going to go with an MBA by a hair. The main issue with the CFA in the case of a hedge fund is this (we’re quoting a hedge fund PM with no MBA or CFA):
“Yeah get a CFA, that is how you get an edge… by thinking just like everyone else”
A hilarious comment, but there is truth in there, look at the top managers in the world and very few of them have a CFA. However if you’re looking to a long-only…
Mutual Funds and Other Long-Only Positions: Any position where your job is to think long-term in terms of investment horizon and manage a large sum of money (not searching for performance metrics on a one-year basis). This is a vague description and gives you a range from a high end Asset Management position or a position at Franklin Templeton. These all fit the bill. So if we take a look at the type of work you’re doing, much more heavy on value oriented investing compared to a Hedge Fund that runs long short equity and merger arb etc., the most transferable knowledge will come from a CFA. To put icing on the cake, practically every firm will pay for your test… Assuming you pass.
Private Equity: You can take a guess here. The answer is a no brainer. Get an MBA. Your job is going to be based much more on relationships and transaction oriented business. If you need to raise funds, you need to have contacts and if you need a buyer for your turnaround story… You need contacts! The CFA is not going to do much for you here compared to an MBA.
Investment Banking: This one is another immediate no brainer. Get an MBA. Many successful bankers do not get an MBA and simply move up the food chain as they have great sales skills. If you end up getting pushed out of the industry for a few years, an MBA can quickly put you back into a front office role within investment banking. If this is what you want to do, the MBA is for you. As noted several times on our blog, you don’t need one though. Focus on work performance at all times.
Equity Research: Here your clients are primarily on the Long-Only side. Why? There is more money being managed in long-only shops than the hedge fund industry. Yes you will speak to many people who work at hedge funds, but at the end of the day… Follow the money. Given that more of your clients have a CFA type mindset, your best bet is to obtain a CFA. You can certainly use an MBA, however, the firm will pay for all of your tests and you can move up the ladder within the firm without spending $200K on an an MBA.
Sales and Trading: The first coin flip. Sales and Trading is a mixed bag. Some of the best sales traders have a CFA, some have an MBA and some have neither. With that in mind, to break into the industry we’ll say the following. Use the first level of the CFA to break into the industry if you’re young, and if you’re in your mid 20’s with no Street experience you are likely better off obtaining an MBA. This truly is the most middle ground in terms of the CFA vs. MBA debate. To clean up this advice, if you already work in the industry then we would recommend the CFA route as you can avoid the MBA cost.
Corporate Finance/Investor Relations: So you don’t want to work on Wall Street and prefer lower hours. Well corporate finance and investor relations are about as close as you can get to the Street without actually working on the Street. In this case you are either working on transactions (Corporate M&A group) or you are constantly speaking with investors, the buyside and the sell-side. The answer is clear. Pick up an MBA.
Important Additional Remarks: For an intelligent reader, there is an enormous elephant in the room which has been mentioned multiple times. Cost. While a top tier MBA offers a lot more mobility, where you can interview for anything from Hedge Funds to Private Equity to Equity Research and beyond, you should always run the numbers. If you are no where near a Wall Street position and are already in the work force, you likely need to jump to an MBA program to get in the door. If you’re already in the business, more likely than not a CFA will serve you better or you need to focus on simply getting promoted.
With that said, we hope to hear about your success soon.
Notably, from a Salary perspective, they are roughly equal. This is because the real income gains come when you generate revenue. Be that in selling companies, taking them public or making amazing trades/investments or raising large amounts of funds for your firm.