MBA versus CFA®

It has come to my attention that my article entitled MBA versus CFA that was in the last newsletter was predominately from the hedge fund perspective. This week I wanted to write the article of which is more valuable from the Private Equity perspective.

In today’s Private Equity world every deal seems to be competitively fought over. In many cases firms have two or three suitors to pit against each other.  In this environment the pricing of such deals becomes even more important as you must carefully weigh the value of the entity versus the premium you might need to pay to be competitive. If you over pay your fund’s performance can suffer and if you are not willing to pay enough you will not win the deal.

As well with today’s competitive “very tight” credit landscape you need to pay as low of a premium as possible while also being able to prove the premium you are paying in the eyes of your potential lenders.  You would think due to both of the above issues that the CFA and what it represents: a strong broad knowledge of finance; would be more valuable then the MBA. Those candidates with the CFA typically have the necessary valuation and modeling skills required to find value along the entire capital structure of an entity.  

But the truth is that the MBA is more valuable in the eyes of most Private Equity professionals and always will be.  An MBA provides one extremely valuable function for a business focused on transactions, valuations and private entities  that a CFA does not - a strong professional network.

As we discussed in the initial article MBA versus CFA, an MBA degree from a top 10 or top 20 MBA program offers you entrance into a very affluent and highly regard network. This network will include many company executives of both private and public companies. Depending on the program this network may even include the heads of  investment banks and commercial banks worldwide.

The successful Private Equity professional and fund realizes the potential of tapping into this network and uses their network to their advantage.  In the world of private companies where there is no Sarbanes Oxley to protect the investors, this network becomes even more important and advantageous to the user. The belief is that the candidate’s strong alumni network may help identify investments, co-investors and help manage/strengthen relationships with the lenders.

In many cases the Private Equity fund has invested in an entity because they believe they can add more value to the entity and that usually involves streamlining operations.  An individual who has their MBA usually has a strong foundation across many categories including marketing, finance, operations and strategy.  This well roundedness is extremely valuable to a Private Equity fund as the fund tries to create value out of an investment.  

It is the same finance focus which makes the CFA more valuable in the Hedge Fund space which makes the CFA less valuable in the Private Equity space.  The nature of relationships in the Private Equity business makes the MBA more valuable both for it’s strong connected alumnae network and it’s well rounded academic foundation.