hedge fund bubble?

Parents Forum
1

<p>This may fall into the “we should only be so lucky” category, but…I’ve noticed on this forum and elsewhere, that quite a few quantitative students are getting jobs at big, big salaries with hedge funds. The financial pages are full of articles predicting that hedge funds are destined for a fall as more and more funds compete to find fewer and fewer overlooked opportunities.</p>

<p>My question is whether anyone is concerned that the money and excitement are luring students who might otherwise have gone on to grad school in math or science or engineering – just as ten or fifteen years ago, there was a group of kids with computer talents who skipped college. Some found their way back to school when jobs disappeared, other did not.</p>

<p>Is this a good thing or bad thing? For the young people? For the society? I’ll take my answer off the air.</p>

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<p>In 1957 the USSR successfully launched Sputnik with a 100+ lb payload. This success came as a huge surprize and also had military implications. The US responded by gearing up the rocketry program and trying to get a satellite in orbit as soon as possible. The vanguard with its grapefruit-sized payload was launched and blew up. The USSR soon launched Sputnik II with a 1000+ lb payload. During the post mortem, it became evident that there were serious problems with science education in the US. In fact our scientists and engineers were not competing with the Russians. We and to a large extent Russia were dependent on German scientists. We were dependent on German scientists for rocketry, ship design, jet aviation and most military hardware. For the next couple of decades, the US put a lot of money into improving math, science and engineering education. </p>

<p>That level of support and interest in the sciences was fleeting and is long gone. Now we are back to a more realistic view, where the scientist/engineer is a Dilbert, an introverted nerd with no social skills. The pointy-haired boss who is in charge, makes the money and makes the decisions, cannot even turn on his computer. Our administration has another stereotypical view and is worried about unethical, mad scientists who might want to do stem cell research in the hopes of finding cures for diseases. Not to worry though, we are importing our scientists from India or better yet we can just outsource for anything we need. We still think we are great - at least as long as Microsoft can make huge profits licensing crappy software. Maybe it is time for another Sputnik. Until then there is no doubt that it is much better for our kids to go into business.</p>

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<p>Education is always be inextricably linked to the salaries students can obtain up degree completion.</p>

4

<p>coming as they do exactly eight days, almost to the hour, of my routine phone call with S who described, at length, how one of his two weekly scheduled financial markets classes had been given over the preceding week to an alum who’s employed by a hedge fund. </p>

<p>I have to say the numbers are staggering. This very bright young man, class of 2001, is now making six times his beginning annual base salary (which was astoundingly high to begin with). The real money, however, is in bonuses. The young man will easily make seven figures this year.</p>

<p>I will add that S’s college does not even offer a degree in econ, finance, accounting, or anything related. The school educates future scientistics, mathematicians, and engineers.</p>

<p>So how strong is the siren call of hard cash? Pretty strong. The alum assures that the only prerequisite is knowledge of “advanced math,” which qualifies virtually every student at the school thanks to the math core alone. Even S, who has been ardently focused since middle school on an academic career of teaching and researching in science at the post-secondary level, considered succumbing. But his parents didn’t raise a complete fool (or did they?). Thank all the gods he’s unwilling to chuck all the hard work, sacrifice, and discipline it’s taken to get as far as he has… despite the prospect of many more years of the same. </p>

<p>Just mosey on over to the engineering board here for discussion about this country’s best and brightest forsaking the technical disciplines for the worlds of i-banking and management consulting.</p>

<p>How did this happen? I tend to agree with a disgusted Sean Corrigan’s analysis. It’s politics (read “monetary policy”) as usual. An excerpt:</p>

<p>“So, who wants to spend weary years of bone-sapping practice learning to be a concert pianist? Who dreams of a Nobel Prize for Medicine for ridding Mankind of one of the many scourges which plague the human condition? What sane would-be innovator-businessman would aspire to be the next Bill Gates, or Steve Jobs? Who would think about a job drilling for gas in the wind-swept wastes of Kazakhstan, or digging for minerals in the fly-blown wilderness of Kalgoorlie? With today’s outrageously skewed reward system – and the twisted monetary backdrop which makes it all possible – why would anyone waste their considerable analytical brainpower to deliver such less controversial benefits to humanity? …Why train to be a farmer or a pharmacologist, when you can join Merrill Lynch and become a millionaire in your mid-20s, using someone else’s ‘capital’ and benefiting from being an insider in the great Ponzi scheme in which we live.” </p>

<p><a href=“http://www.lewrockwell.com/corrigan/corrigan82.html[/url]”>http://www.lewrockwell.com/corrigan/corrigan82.html&lt;/a&gt;&lt;/p&gt;

<p>p.s. to sac: If you put your answer back on the air, I’ll read it. Promise.</p>

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<p>Time has proven that it is hard to beat the market over the long haul. The market adjusts and ends the excess profits made by finding inefficiencies in the market. Whatever swings these funds are taking advantage of will eventually be priced into the market and end the excess profits. Nobody has the magic key for long. Many of these firms are failing as fast as they were created.</p>

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<p>even if they did not pay well, financial analysis jobs would still be appealing to some tech types. The economic modeling that is involved is intellectually interesting, and the aspect of trying to beat the market is very game-like which is appealing to kids who have grown up on computer games. And who is to say that very many of the people who go into financial analysis will choose to stay there? Most people coming out of college today will have multiple careers in their lifetimes. A few years of mega paychecks and paying off student loans may actually make it easier to start up the next Google, go to grad school, or to do something that is more purely altruistic. The guy who founded Amazon got his start (and some of his start-up capital, I suspect) at a hedge fund. Who is to say that being a concert pianist is a higher calling in terms of making the world a better place?</p>

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<p>Sorry that I posted and ran. These are my two favorite quotes from the above discussion. What they seem to have in common is that, whether or not you think it’s a bad idea for someone to take this kind of job and make the bucks right out of college, there is an still an underlying sense that there should be some other goal eventually, something that is somehow more productive if not more altruistic. </p>

<p>I posted this because I see the draw for my son. On the one hand, he’s someone who might otherwise work at figuring out the source of matter in the universe, or might use mathematical modeling to look for the source of cancer, or might even be a jazz musician and composer. I realize it is a matter of personal values. Yet, I think it also has consequences for all of us. On the one hand, suddenly, there is all this urging to get more kids into math and science. On the other, suddenly, there are wads of money being wafted under the noses of some of the most mathematically talented kids in the country. Perhaps it was always thus?</p>

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<p>Whoa–Edad is clearly vexed.</p>

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<p>Thanks for coming back to us on this!</p>

<p>I agree that it is both a matter of personal values and has consequences for us all. Imagine how different life as we know it would be had Einstein been a bond trader instead! :)</p>

<p>That’s one reason I found Corrigan’s position intriguing, that we make decisions in the collective that profoundly influence individual choice in subtle ways that we don’t necessarily intend and are not in the best interests of either the individual or society; and there’s value in examining the sublime forces that make those decisions possible in the first place. There’s a certain irony, as you’ve alluded to, in that the individuals choosing the (for lack of a better term) “big money” alternative are the same individuals who would most likely be the ones otherwise creating the underlying wealth the financial world trades in.</p>

<p>And some individual choices cannot be revisited. A kid, like my S, on a long-term competitive academic track cannot afford a few years off-track. Even a few million won’t make up the opportunity cost.</p>

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<p>Gee, I’m hardly an apologist for the investment industry, but one of the reasons that economists give for the robust state of innovation in the US is our efficient capital markets. What good is a breakthrough discovery in disease management if you can’t get financing from investors for a clinical trial? How are all the entrepreneurs working on “green” transportation solutions going to get their companies and products off the ground? All you folks with kids going into academia… where does the money come from that funds R&D and basic research?</p>

<p>It would be nice and idealistic to say that my son the English professor doesn’t need to worry about the markets… but if he wants to buy a house or get a credit card, that’s a little naive.</p>

<p>I don’t see all these great minds who could have been in a lab being siphoned off into Hedge Funds. Back in 2000 their older siblings were going off to crazy dot.coms which went bust; in the mid-90’s everyone wanted to do M&A; in the late '80’s they were discovering derivatives and were working as “rocket scientists” at Goldman Sachs.</p>

<p>Same words, different tune. There have always been smart kids with quant skills who have headed off to Wall St. Some of them make millions; some of them fail and go back to grad school; some of them burn-out and become high school chemistry teachers. I don’t think it’s an indictment of these kids or of their values… nor does it say anything particularly wonderful about the kids who could get these jobs but opt for another path. In economic terms, all these students are optimizing whatever factors are most important to them.</p>

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<p>have it EXACTLY right.</p>