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Why folks are skipping the MBA? Little bastards cleaning up in Private Equity.

Jesus Christ. Two years at the Univ of Chicago's Booth MBA program will put you back $163,000 plus room and board plus the lost earnings from being away from your current job. If you're pulling down $150,00 per year, that's ...hold on...I need my calculator. A half a million bucks.


Forgoing an M.B.A. Gains Popularity in Private Equity

A traditional emphasis on business school credentials wanes as costs rise and private-equity firms seek more diverse recruits


By Isaac Taylor, WSJ

Updated June 4, 2023 9:00 am ET | WSJ Pro


Soon after graduating from Boston College in 2017 with a bachelor’s degree in finance, Lauren Wedell landed a job as an analyst at Chicago-based investment bank William Blair & Co. She subsequently joined technology-focused investment firm Battery Ventures in 2018 as an associate and has risen to vice president.


Wedell’s career trajectory within private equity has been typical in many ways but for one crucial decision: She said she had decided there was more value in gaining two years of deal-making experience than earning a master’s of business administration and returning to a similar role at the firm.


“I was fortunate to have a direct promotion path from associate to [vice president] and was able to do so without going to get an M.B.A.,” Wedell said. “I do know there are private-equity firms where it really is mandated across the board in terms of a requirement to reach a certain level. And so I think it depends on the [firm] itself and also each individual.”


As the industry developed over past decades, most early-career private-equity professionals went along a well-trodden path of interning at an investment bank or buyout firm while in college, followed by entering an associate program after graduating. These budding financiers would then go back to school for an M.B.A. before returning to a senior associate or vice president role in the industry. And for many younger professionals, the benefits of networking and obtaining a broader knowledge of business and finance still move them to pursue an M.B.A.


Increasingly in recent years, however, professionals entering the industry are following a similar path to Wedell and forgoing a graduate degree as fund managers shift away from the traditional, if informal, M.B.A. requirement. Firms such as Battery Ventures and Vista Equity Partners give priority to hands-on experience and diverse backgrounds when hiring and promoting young financiers. The emphasis on individual ability opens opportunities for those without an M.B.A.


While the tuition and fees can be steep, obtaining an M.B.A. can provide distinct advantages, Wedell said. Some firms reward holders of the degree with greater opportunities to participate in investment committee discussions, for instance. In presentations to potential investors and investment targets, an M.B.A. can enhance a less-experienced financier’s credibility, said David White, a founding partner of Menlo Coaching. The company provides admissions consulting and test preparation services to help applicants get accepted to the business school they prefer.


Industry views and practices are evolving, however, as firms reconsider talent sourcing for more flexibility in hiring and recent college graduates rethink career paths.


Technology investment specialist Vista, which manages about $96 billion, is among those firms that don’t require M.B.As for professionals.


Hands-on experience provides the best lessons, according to David Breach, Vista’s president and chief operating officer. An apprenticeship model gives the firm’s young financiers exposure to deal and portfolio activities early on. He said that substantially all of Vista’s senior leaders have ascended through the ranks.


“Vista considers a diverse variety of experience and education across all of our hiring efforts,” said Breach, who doesn’t have an M.B.A. himself. “Much of our junior talent strategy is focused on undergraduate candidates or those with several years of professional services or investment-banking experience.”


Despite the industry’s traditional emphasis on M.B.A. credentials, many of its most successful executives reached senior leadership roles without going to business school.


At Blackstone, Jonathan Gray rode a wildly successful career to become president and chief operating officer. He joined the New York buyout firm in 1992 and went on to serve as global head of real estate, which he helped to build into one of the largest real-estate investment operations, according to the firm’s website.


At peer firm KKR & Co. in New York, the co-chief executives rose to the top without holding M.B.A.s. Joseph Bae started his career at investment bank Goldman Sachs Group after graduating from Harvard College and Scott Nuttall took a similar route after obtaining a bachelor’s degree from the University of Pennsylvania.


Rather than a degree from a leading business school, the biggest determination of someone’s success is what firms often call a spark or an X-factor, typically defined as the ability to differentiate oneself and his or her employer, said John Rubinetti, a partner at Heidrick & Struggles, an executive search and management consulting company.


For those who choose to pursue an M.B.A., challenges can include bearing the economic burden of what can be substantial tuition and fee costs, as well as forgone income. At top business schools where private-equity firms often find recruits, the cost of attending for two years can reach $200,000, including related expenses. A small number of firms help associates bear the costs of M.B.A.s, but most don’t, according to industry experts.


Last year, applications fell for the class of 2024 at Harvard Business School, Yale School of Management and the University of Pennsylvania’s Wharton School, with declines ranging from 10% to 15%. The hefty price tag of the degree deterred more than half of over 1,500 prospective students who considered applying to business school last year from ultimately doing so, The Wall Street Journal reported, citing consulting firm Clear Admit.




In addition to paying for school, prospective students also weigh the loss of income that would come with going back to classes. Senior associates at top firms can make $350,000 annually, including bonus, meaning the choice to pursue an M.B.A. can put someone already in the business in a nearly $1 million hole over two years.


Among M.B.A. graduates of Harvard Business School last year, 15% joined a private-equity firm, according to the school’s website. They started out with a median base salary of $175,000, up almost 17% from 2018. Nearly 84% also stood to receive a median annual performance bonus of $175,000, according to the school.


For Jenny Chen, 28, the benefits of furthering her education outweighed the costs, she said. She is pursuing an M.B.A. at Wharton following nearly three years of work as an associate at a private-equity firm.


Her firm encouraged—but didn’t require—her to go back to school for an M.B.A., she said. Chen made the decision to continue her education in large part because of the extensive networking opportunities that business schools typically provide. She said her classes also help her fill knowledge gaps on matters such as tax structuring and restructuring law.



For Jenny Chen, 28, the benefits of furthering her education outweighed the costs.

PHOTO: CARLY GILLIS

Another factor in the choice to attend business school can be freedom from the consequences of failure. People feel safer taking risks in a school environment compared with on the job, where performance generally affects decisions on compensation and promotion, said White of Menlo Coaching.


When at work, young professionals are “probably going to play it very safe and [be] deferential and focus more on not making mistakes than on developing themselves,” White said.


In addition, many entry-level jobs limit exposure to important tasks and situations. On-the-job experience can be very narrow, said Nicholas Kalogeropoulos, a senior associate director of employment relations at Columbia Business School.


“With a school curriculum, which also includes practical experience, you get exposure to all sorts of subjects that have to do with business,” he said. “You get experience in finance, marketing, data analytics, leadership. You can’t have a job, particularly for two years, that exposes you to all that.”


Write to Isaac Taylor at isaac.taylor@wsj.com

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