Leveraged Finance: To B-School or not to B-School?

Analysts often leave leveraged finance positions to pursue different career paths such as private equity and hedge funds, which quite often then lead to business school, which of course, is where the major leveraged finance firms recruit their associates. Sometimes, analysts leave a firm to go to business school and end up coming right back the leveraged finance as associates.

Most investment banking analysts wrestle with the question of whether to leave leveraged finance to go to business school, as the timing typically makes financial sense. Paid a bonus in July, an investment banking analyst is able to make a clean break after his second or third year without leaving a half-year's bonus on the table. Even associates who have reached the associate level without an MBA are often willing to leave for a business school stint, either because they see the value of the MBA in the upper echelons of management of banking, or they desire a serious career change.

Despite the fact that business school is a common route for analysts and associates, the best analyst-to-associate professionals (junior bankers who have been promoted from analyst to associate without going to business school) generally have no immediate need for an MBA because they have already learned the processes and procedures of leveraged finance. If you look at the profiles of MDs and VPs, many of those within leveraged finance do not have MBAs because there was less of a need for an MBA for advancement purposes when they were promoted. This is where leveraged finance, with its commercial banking roots, differs from traditional investment banking: top-performing analysts are not pushed out to MBA programs. Rather, they are often kept in-house and groomed for management positions.

More so in leveraged finance than in investment banking as a whole, MDs and VPs who worked from analyst to associate to VP to MD had very little to gain from leaving the field, getting the MBA and returning back to leveraged finance. As the old saying goes, "the proof is in the pudding." If the most senior MDs do not have MBAs, then there was likely very little need for it to advance to their level when they were being promoted. The same holds true for commercial banks and finance companies. However, as the MBA degree has become more popular, those who've earned it are penetrating the ranks of the biggest and best leveraged finance platforms. At the bulge bracket investment banks where MBAs are a staple in the corporate finance divisions, it is almost expected that a division or group head will have an MBA.

What are the advantages of having an MBA in leveraged finance?

If you are interested in an MBA (or are currently pursuing one) and leveraged finance, the above does not mean that there is no value in the degree in the field. Many MDs and VPs who hold MBAs did not originally start in leveraged finance. Subsequently, they used the MBA as something of a "career reincarnation," redirecting themselves into the field. Furthermore, as the MBA has become an increasingly popular degree, it has changed the playing field. The same leveraged finance MD who did not pursue the degree 20 years ago might view the situation entirely differently today.

Aside from the personal and alumni network that MBA graduates bring to the table (which can be immensely valuable), they bring a unique perspective to the table. With prior job experience, they view situations differently than their analyst-to-associate counterparts. Also, since they have not spent three years on the same deals with the same clients, they usually are less in-the-weeds and bring fresh insight to deals. Quite often, this fresh perspective is very much appreciated.

You should consider the profiles of a firm's senior management. In the case of investment banks, commercial banks and finance companies, the very top-tier management usually have MBAs. If your goal is to run a division or firm, the degree could be quite useful from a credential perspective. That being said, the best man for the job in leveraged finance is still likely to be chosen based on experience, regardless of whether or not he/she has an MBA.

What are the relevant classes I should take if I am getting my MBA now?

If you are currently pursuing an MBA and are interested in coursework relevant to leveraged finance, look no further than your corporate finance and accounting classes. As a debt function, leveraged finance tends to be concerned quite a bit with the interaction of the three financial statements: the income statement, the balance sheet and the cash flow statement. Understanding how these three interact bodes well for your success in leveraged finance. A sound understanding of both corporate finance and accounting will provide you with these necessary skills.

Advanced finance classes that discuss acquisition finance, capital structures of companies and the financial markets will also be very useful when it comes to understanding the day-to-day workings of leveraged finance. These classes will touch on all of the major terminology of leveraged finance and will put the transactions and financial markets into perspective. Finally, if your career center offers classes on investment banking and/or commercial lending, these are definitely a must for anyone interested in leveraged finance.

If I am thinking about a career in leveraged finance, which is better: a full-time MBA or part-time program?

The quick answer to this question from a recruiting standpoint is full-time. Not only will you have access to the career center (which you might not with a part-time program), but you will also have the opportunity to intern with a firm, which is the golden way to get a career in leveraged finance. If you are a part-time MBA and are looking to make a switch to leveraged finance, this is a difficult transition because you might be job hunting, attending classes and working at the same time, while you are competing with a group of peers who are able to do summer internships at their target firms. However, sometimes part-time MBAs will come over to leveraged finance once they have completed their MBA program, generally as lateral hires, if they do not make it during the regular recruiting season, or they are hired after full-time offers have been extended.

For those currently in the field of leveraged finance, however, the answer is part time, as it tends to serve as much purpose without the high cost of tuition. Provided you are able to manage the MBA time commitment and your firm is willing to pay for the degree, the part-time MBA can be a huge payoff. Not only will it give you the credentials you are searching for, but having your firm pay for it lets you know that they are genuinely interested in your career potential with them.