Want More Alpha? Hire From Different Schools26 Nov 2017
Proprietary trading is all about having an edge–firms can’t make a dime unless they know something no one else does (or, for the more skeptical, unless they guess at something correctly that nobody else guesses at correctly).
As director of sponsorship for a large hackathon, I read a lot of recruitment pages to understand if a company would agree to a sponsorship deal. A lot of trading firms all recruit from the same places: a few of the Ivy Leagues, MIT, and the University of Chicago. A handful of Chicago firms recruit at Michigan and UIUC as well.
There might not be a problem with that educational homogeneity: companies are better when smart people work for them; trading is no exception. Since smart people go to shiny schools, you get the most bang for your recruiting buck by going to shiny schools exclusively.
But for an industry where edge determines whether you eat or starve, wouldn’t you expect there to be a little more educational diversity (or any diversity at all)? I’d posit that smart students from universities with less name-recognition think differently than those at universities with more, by nature of the fact that they didn’t go to the same school. You might say that high-caliber universities create diverse student bodies–and therefore diverse ways of thinking–but recent data suggests that not to be the case. Racial diversity has been dwindling at elite schools over the past three decades.
I see diversity in educational training as an advantage that translates directly to alpha generation. McKinsey research has suggested this same idea for years: diversity helps a company’s bottom line, period. I wager that trading is no different.
These are just my musings. But if I ever start a proprietary trading firm, don’t expect me to be recruiting solely from two schools in Cambridge.
Thanks to Kellie Spahr for reading a draft of this post.