Scientists in Canary Wharf

Bryn Hazard.

When you think of a physics graduate you probably envision a career spent developing cutting edge technology, peering through telescopes, or solving some of the deepest mysteries of the universe. It may surprise you then to hear that an increasing amount of top physics graduates are ditching the lab coat in favour of donning the suit of a finance professional. Whilst many might say that the financial crisis of 2008 demonstrated the need for better strategists and critical thinking in the financial industries, others are adamant that physics graduates and the scientifically-minded best serve the economy by developing technology and performing vital academic research. Is this Boffin ‘brain drain’ to the banking industry all a façade, or are we losing some of our brightest scientific minds to the allure of top salaries and a life in the capital?

First articulated by Louis Bachelier in his 1990 essay “Theory of Speculation”, in the past century a growing link between science and finance has emerged [1]. Bachelier’s theory employed the mathematical concept known as the ‘random walk’ to analyse the fluctuations in the Paris stock market, becoming known as one of the earliest examples of quantitative finance. Five years later, his theory would be applied by Einstein to explain the jagged movements of pollen grains when suspended in water [2]. Since the 1900s, mathematical finance and the quantitative analysis of financial markets has all but grown in sophistication, with members at all levels of financial institutions relying on computer programs, and mathematical models such as the Black-Scholes formula (a formula that exhibits vast similarities with statistical and thermal physics) to predict and analyse a multitude of outcomes. As the financial industry continues to depend upon the predictive power of advanced mathematics it’s no wonder that top business and financial firms have begun to seek more mathematically inclined graduates to fill their trading floors and risk analysis departments.

In the United States, prestigious universities such as Harvard and Princeton have consistently seen a large proportion of their best STEM (Science, Technology, Engineering and Maths) graduates succumbing to the glamour of the financial industry [2]. At MIT it was found that 61% of science and engineering graduates fled to the finance industry [3]. However, this trend is not isolated. Within the UK The Institute of Physics estimates that 20% of physics graduates are finding jobs within the finance and business sectors, a much higher percentile than those finding employment within energy, environment, government, and the science and technical industries themselves.

These figures may not come as a surprise to anyone that has ever attended a STEM careers fair, where financial and consulting firms dominate the stands, equipped with the best promotional materials and selling the dream of fame and fortune. The banking sector thus borders on a monopoly in regards to its recruiting process at universities, particularly as many financial institutions are keen to invest in internships and grad schemes to capture up-and-coming talent. Take Stanford University for example, which runs an employer partnership program. Such programs which are intended to grant employers ‘a premier position in regards to on-campus recruiting’. The programme essentially grants the participating employers the best spots at careers fairs and exclusive access to conference rooms for career talks. Currently there are 35 companies enrolled in the partnership programme, 21 of which are financial and consulting firms [4]. At the University of Nottingham where I currently study I recall a story of a student winning a free iPad at a KPMG career talk. I wasn’t even present at the talk, but such examples of excess don’t go unnoticed at universities where students struggle to scrape together enough money for a pot noodle. Compare this then with the average scientific research career talk, where you are lucky if you come away with a slice of pizza or a plastic cup of orange squash. With disproportionate exposure such as this it’s no wonder interest in the business and financial sectors amongst science graduates has surged.

However, it is not just recruitment tactics that are driving up the numbers of science majors interested in entering financial industries. Over the past few years’ tuition fees have risen on average to £9000 across the UK. With many students carrying loans of more than £30,000, for many young graduates the allure of a high salary and the financial stability the business and financial sectors offer is easy to understand. Most recently PwC (one of the ‘Big Four’ auditing companies) sponsored a quiz at the student bar that I work at, offering a prize of £1000 for first place. The bar was packed. As a prospective STEM financier puts it ‘the money is simply unparalleled. £45,000 a year plus bonus as a starting salary, and you know that in 12 years you rise from analyst to associate to vice-president, to director, by which time you will be making hundreds of thousands of pounds a year. Suppose you come from parents who were working on the shop floor. Now, if you get into banking, by the time you’re out you will have been able to put your children through Eton and emerge at the top of the food chain!’[5].

But what impact will this trend in recruitment have on the academic and research sectors? In competition with of some of the best entry-level salaries and compelling recruitment schemes in the country, is this poaching of top physics students by the financial industries disastrous for the future of academia? Who will continue to produce vital academic research when the business and finance sectors are luring science graduates away from academia by the hundreds? Perhaps we need not worry. As recent research, has identified a convincing divergence in aptitude and personality between graduates entering the financial industries and those choosing to stay within the scientific community. In particular, Pian Shu’s paper entitled ‘Career Choice and Skill Development of MIT Graduates: Are the “Best and Brightest” Going into Finance?’ indicates that physics’ financiers report on average lower GPAs than those that continue to pursue academia and who go on to complete PhDs [6]. While Shu’s paper additionally outlines a clear difference in the extracurricular activities students entering business and finance pursue through the course of their degree in comparison to those that continue in science. The former favouring more social activities such as leadership programs, sports and societies while the latter appear inclined to pursue further academic education such as masterclasses or attending guest speaker lectures. Thus, while Pian Shus’ research is limited to those graduating from MIT, it certainly seems to indicate that students best suited to a career in science are largely unperturbed by the benefits a life in finance has to offer, while those whisked away were perhaps destined to do so. For not at least, we may at least take comfort knowing that the next Isaac Newton is not likely to be swayed by the lavish lifestyle of the financial sector (albeit Newton did spend a large proportion of his research career trying to transmute gold).

With the effects of the 2008 financial crash still fresh in our minds it feels natural to be critical of the financial industry and to feel concerned that the number of young graduates flocking to the business and financial sectors represents a generation corrupted by greed. However, with new advances in technology and the subsequent evolution of the financial industry it would seem, that modern day banking requires this new wave of highly intelligent and analytical individuals capable of understanding the latest technologies and their applications such as block chains, artificial intelligence, and even more elaborate predictive programs. A strong financial sector is a vital component to a strong functioning society, let’s not forget that a lot of scientific advances are often on the back of private investment. The scandals and corruption of the past decade have tarnished our view of the banking industry, perhaps now more than ever, the industry is in dire need of fresh thinking. As one Harvard professor remarks, ‘idealism and inventiveness are two of the best traits of youth, and finance especially could use them’ [].

Thus, while we may accept that a career in finance is a respectable vocation for a physics student, the question remains, are too many physics graduates entering finance? A study by Stephen G. Cecchetti and Enisse Kharroubi suggests that whilst a strong financial sector is a positive for a country’s economy, the larger it grows it begins to imitate a whirlpool, sucking resource and capital from other industries, the results of which can be disastrous for the economy [8]. Cecchetti and Kharroubi find that of the industries most affected by this whirlpool effect, Research and Development experience the greatest loss as highly skilled workers are drawn away from research and into the booming financial sector. They write ‘the financial industry competes for resources with the rest of the economy. It requires not only physical capital, in the form of buildings, computers and the like, but highly skilled workers as well. Finance literally bids rocket scientists away from the satellite industry. The result is that erstwhile scientists, people who in another age dreamt of curing cancer or flying to Mars, today dream of becoming hedge fund managers.’ But the problem is not limited to the economy. The predicted shortage of natural resources, environmental issues, and the threat of nuclear war all represent global issues requiring scientists’ attention. Thus, as the finance industry continues to grow, we may just find that more and more physics graduates are drawn away from helping resolve these key global issues and instead focusing their talents on stock portfolios and investitures as Cecchetti and Kharroubi predict.

One striking realization is the lack of information out there. I could find very little in terms of employment figures or genuine discussions on how to manage where graduates find continue on to. Professors and students alike seemed completely aware of the finance industries influence on campus, and equally displeased, but when it came down to it there was no concrete plan to do anything about it. Perhaps it’s because no one wants to assume the position of telling students where to go. Or, more likely, that the funding universities receive from finance firms is just too powerful. Is this is a failing of society? Society needs to ensure its best and brightest minds are put to the optimum use. We need to spot where we need skills and universities need to respond to that, otherwise we run the risk, as earlier stated, of some sectors ballooning and sucking the oomph out of other sectors to detriment of the entire economy, and world. University should be a place where the next generations’ minds are free to dream of who they want to be, this enthusiasm and inventiveness is what drives progress. Are we really sure that by allowing a small, albeit profitable, part of society to have so much influence over our graduates futures, that we are not doing them a disservice? Recruitment is always going to be a competitive and generally free realm, but when top corporations are essentially allowed to buy exposure we run the risk of driving a disproportionate amount of students away from sectors that really need them. Perhaps it isn’t for society to intervene in the life choices of a graduate, but then are we to sit idle, and watch as young bright physics graduates are tempted away by the notoriously high salaries of the banks? After all the next Einstein will undoubtedly have unprecedented loans to pay off.

References

[1] Louis Bachelier, Theory of Speculation, September 3, 1900

[2] http://www.huffingtonpost.com/2011/11/15/brain-drain-college-grads-wall-street_n_1069424.html

[3] Innovating in Science and Engineering or “Cashing In” on Wall Street? Evidence on Elite STEM Talent Pian Shu Harvard Business School

[4] Stanford University Website, https://beam.stanford.edu/employers/become-partner

[5] https://www.theguardian.com/commentisfree/joris-luyendijk-banking-blog/2012/jan/16/prospective-intern-mathematical-finance

[6] Career Choice and Skill Development of MIT Graduates: Are the “Best and Brightest” Going into Finance?, Pian Shu, June 3, 2013

[7] https://www.nytimes.com/2015/04/12/upshot/why-a-harvard-professor-has-mixed-feelings-when-students-take-jobs-in-finance.html

[8] Reassessing the impact of finance on growth Stephen G Cecchetti and Enisse Kharroubi January 2012

Scientists in Canary Wharf

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