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June 20, 2011 2:17 am

Soap Box: The perfect degree does not exist yet

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Finance has become a hot area of graduate education.

A multitude of programmes has been launched by some of the world’s elite universities. Often, these have been wildly successful, delivering excellent career opportunities for students.

The future seems full of possibilities, as those who have yet to join the rush are jolted into doing so by the victories of pioneers.

What has made finance the modern academic star?

There are three main factors: first, the amount of money to be made has grown exponentially beyond what non-financiers can make; second, the world has become “financialised”; third, the practice of finance has been upgraded and made more complex and sophisticated.

In sum, it is an attractive, modern-seeming area that can dominate newspaper headlines across the planet. No wonder we are in a financial education bubble.

Are business schools getting their programmes right? Not always. Some, correctly, do not focus too much on theory but can be a bit boring. Others are more interesting but too theoretical. The correct balance is elusive and the perfect finance degree does not exist.

A finance masters, first and foremost, must be about finance.

This apparently ridiculously obvious assertion needs to be made at the outset for one very important reason: for too many students and in too many schools, finance is not always unquestionably about finance.

As financial economics subjects have became popular, quantitative disciplines have sometimes overtaken more staid-seeming areas such as accounting, equity markets and corporate finance in the classroom.

Learning about econometrics, microeconomics, stochastic calculus, and computational methods became a more important requirement than actually learning what a bond is.

Not all schools have taken this road. Some make these topics part of the core; others ban them from the core, at most offering a handful of “quanty” electives. London Business School in the UK and Boston College in the US take the latter approach.

LBS and BC were among the first to launch specialised finance degrees, in the days when the rocket science mentality had not permeated the field and finance was still about finance. Princeton University in the US and Oxford university in the UK use the other approach.

These youngish programmes offer a long list of seductive electives, but before they can enjoy such treats, students are condemned to an initial period studying hardcore analytical-theoretical material, that is not terribly relevant to actual practice.

Cambridge university (another newish kid on the block) also has a hybrid strategy, but is slightly less theory-heavy.

Among elite institutions, the most recent entrants are MIT and Columbia University. Both have erred on the analytical side, making students take a lot of PhD-level instruction. I fear this will lead to graduates who see finance as more of a science than a business.

How should the ideal degree look?

I had the privilege of advising a top European business school on the creation of two finance degrees a few years ago. My proposals were these.

First, real-world relevance is crucial. Second, offer attractive up-to-date curriculum options, such as financial history and emerging markets M&A. Third, be flexible. Do not straitjacket students. Let them take almost any course they want, including electives in unrelated disciplines, such as humanities.

Fourth, don’t churn out coding monkeys – emphasise big picture thinking, not prowess at complex calculations – why should MBAs monopolise the “strategic” zone? Fifth, use top practitioners with relevant experience to teach, at least as much as tenured academics – a great way to imbue the degree with undogmatic wisdom. Sixth, don’t make the programme too “quant-heavy” – otherwise, why not just offer a masters in financial engineering?

To me the ideal programme would combine the no-nonsense approach of the LBS core courses with the sophistication of some of the cutting-edge electives offered at Princeton, Oxford or MIT, with additional subjects that are often lacking, particularly courses on historical episodes, regulation, and management. The more conservative programmes just need to sex themselves up, and the more adventurous ones get back to basics.

And lectures on “What Caused the Credit Crisis?” and “How Will Basel III Change The World?” should be put together promptly by people who have been out there in the markets.

The writer is a former business school professor and author of “Lecturing Birds On Flying”

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