Ninety One recently hosted a group of work-experience students, and I [Steve Woolley] had the pleasure of meeting two of them. I attempted to explain what we, as portfolio managers and analysts, spend our days doing. Bright and enthusiastic, and with an understanding of financial services that was extremely impressive for teenagers (one of them even knew what a CDO* was), the students were keen to get a feel for where their future academic and career paths could take them.
The last question they asked me resulted in some introspection on my part. It was whether I would recommend a career in financial services generally, and asset management specifically. Working backwards, if an individual has set their sights on financial services, then asset management is surely one of the most interesting and rewarding subsectors for a curious, ambitious individual. But would I recommend financial services as a career starting point? That is a tough one. The idea that the brightest young minds in fields as diverse as mathematics, natural sciences, social sciences, and even politics and psychology, would gravitate towards financial services, rather than putting their talents to medical, scientific, political and other challenges, is a troubling one.
My point isn’t that financial services is unimportant. From an asset management perspective, helping people generate returns on their savings so that they can better handle life’s inevitabilities (like getting old), as well as its vagaries, is socially useful. The issue is rather that finance tends to attract more than its fair share of talented young people. None other than Charlie Munger (Warren Buffet’s right-hand colleague) has been quoted as noting that an increasing proportion of smart university graduates are going into finance. As ever, Munger does not mince his words, suggesting that “I don’t think we want the whole world trying to get rich by outsmarting the rest of the world in marketable securities, but that’s what has happened”.
By way of full disclosure, I am as guilty as they come. Halfway through a masters’ degree in mathematics (some years ago now), I started shifting my career thoughts away from a research role at the European Space Agency (ESA) towards a graduate programme in financial services. Why? The ultra-competitive application process for a role at the ESA, significantly lower pay, and likely requirement to study further for a PhD were certainly all influencing factors. As an aside, I was touched and amused that, when I mentioned this past dilemma to the work-experience students, they suggested that there is still time for me to try my hand at space research. I suspect that rocket has flown!
‘Fixing’ this issue (if, indeed, there is an issue to fix) would be a huge undertaking, involving tackling relative pay, taxation and incentives across industries, and perhaps even regulation and the dreaded hand of government. Nevertheless, the idea that we are enticing such a high proportion of our brightest and best into finance does not strike me as the best use of our education system, or the talents of our young people. As a father of two, I hope that, when the time comes for my kids to choose a career, there will be more incentives to pursue a broader range of disciplines, better reflecting the value of these disciplines to society.
From a selfish perspective, I suppose I might take comfort from this further confirmation (if it were needed) that humans have a habitual tendency to misprice things. After all, it keeps value portfolio managers in work, and generates returns for their investors. From a societal (and parental) perspective, the optimist in me might take hope from financial markets – while they are often slow to discover the true value of stocks, they tend to get there eventually, ironing out price distortions in the process. Whether society will get better at valuing, and hence incentivising, jobs other than those in financial services remains to be seen. But if the two students I met are anything to judge by, we can at least be encouraged that the professional disciplines of tomorrow will be in capable hands, whichever path they ultimately choose.
* Collateralised debt obligation.
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