In Linda Kreitzman’s office at the University of California, Berkeley, is a leather sofa, a present from the class of 2008. “They called it the therapist’s couch,” says Ms Kreitzman, the executive director of the one-year Masters of Financial Engineering (MFE) at the university’s Haas School of Business.
Ms Kreitzman has been matching financial engineers – or “quants” – with her contacts in investment banks, hedge funds, insurance companies and rating agencies since the first class in 2001.
A decade ago financial recruiters needing quantitative expertise to programme models and develop trading strategies would have hired physics PhDs and then invested company time and money training them in finance.
At the suggestion of David Pyle, professor of banking and finance at the school, Ms Kreitzman and John O’Brien, an adjunct professor, launched the first MFE course based in a business school in March 2001, enabling students to learn about computational finance alongside business and economic principles.
Lasting an intense four terms, the degree includes a 10 to 12-week paid internship that begins in October, after three-quarters of the course work has been completed.
Trading desks in banks, the traditional destination for quants, have lost staff since the financial crisis and “quant quake” of 2007 and 2008. Yet the appetite for quantitative analysts remains.
In the 2011 MFE class, 65 of 66 graduates secured full-time jobs. “Typically, we’ve placed people as traders and structurers with big banks on Wall Street, but the world is changing,” says Ms Kreitzman. “Now we are just as likely to place someone in the SEC [the US securities regulator] in Washington or Facebook in Menlo Park. They are looking for the same people.
“I’m certain that there will be a greater need for financial engineers in the future, not less. Risk management, regulation and automated trading are all growth industries,” she says.
Ms Kreitzman says the MFE follows industry – professional faculty drawn from business include Ron Kahn and Michael Melvin, from BlackRock, the fund manager, and Jing Zhang and Amnon Levy of Moody’s – but also tries to anticipate changing needs, reducing the number of taught units on derivatives from four to three.
A steering committee of industry managing directors meets twice a year to discuss the syllabus. “We also ask alumni how much of the programme they use. The answer most of the time is 50 per cent.”
Students come from a variety of backgrounds: some straight from first degrees, others have masters and PhDs. Some have financial industry experience, others none. But Ms Kreitzman tries to ensure they start working from the moment their application is approved.
“There’s no such thing as a slam dunk. Their biographies may be impressive, but we always find something we’ll want them to do before they start, whether it is reading corporate finance books or taking one of our pre-programme courses in mathematics, statistics or C++. So it’s more like a 17-month course, but our objective is to provide employers with applicants who can hit the ground running.”
While MFE degrees now exist in other business schools, including UCLA Anderson, Rutgers Business School in New Jersey and Imperial College in London, Ms Kreitzman says the internship is a significant selling point for Haas, and has helped dispel notions that a course at liberal Berkeley cannot serve Wall Street. In the class of 2012, 66 of 67 students did internships with recruiters including Citigroup, Bank of America, BlackRock, Standard & Poor’s and Moody’s.
But, after the crisis, the programme must also adapt to consider how financial engineering can help the wider economy.
Prof O’Brien’s financial innovation course, for example, now encourages students to use their quantitative knowledge to create products that might have broader social value.
This year, five MFE students proposed a scheme that would award microloans to ex-convicts looking for a second chance.
Named “Valjean financing” after the good-hearted thief of Les Misérables, the Victor Hugo novel, people would qualify for a Valjean bond after being evaluated for conduct and their potential to repay. Investors could bid on the interest rates, with the lowest rate winning.
“Being able to apply financial tools to such a cause has been the most fruitful experience for me,” says Angelo Caraballo, leader of the project, who begins a sales and trading role at Citi in August. “This skill should be useful in any place of work.”
This year’s graduates also decided to create a scholarship in memory of a classmate who died just two weeks before graduation.
“It has been very difficult,” says Ms Kreitzman, “but a reminder to [students] that happiness is not just a job.”