It used to be that the brightest young Wall Streeters were the ones who landed internships at Goldman Sachs.
But now the standard has changed, and the most coveted internships on the Street are at hedge funds and private equity shops instead.
The young financiers who pull this off are the elite among an already sharp group of people. And many of them have one thing in common:
They are leaders and members of university investment clubs.
These students are underwhelmed by their Ivy League courses, they know the ins and outs of finance as well as any junior banker, and many of them aren’t even 21 years old.
Suited up and sophisticated.
About 100 of these students from colleges across the US and Canada gathered in New York last weekend for a young investors conference co-hosted by Bloomberg Institute and Upgrade Capital, a talent scout that showcases young investors to financial firms.
Some of the attendees were interns at typical investment banks. But the vast majority said they currently work or had worked on the buy side — that is, hedge funds or private equity.
What sets these young people apart is not just their willingness to don suits and ties and spend a Saturday afternoon networking. It’s the thoroughness with which they understand investing — and the real passion they bring to it.
Unlike many young Wall Streeters who simply fall into finance, swayed by recruiter pitches during junior year of college, these students have known for years that they love investing. To them, taking the typical Wall Street career path, which begins with a two-year banking gig (known for gruelling 100-hour work weeks and high-pressure work environments), means “taking it slow.”
They have studied the industry and know exactly what areas interests them — from distressed debt to energy trading to quantitative analysis.
Managing real money.
Their investment clubs, too, are sophisticated and highly structured. Some schools, like Wharton, have more than one club. Within the clubs, there are multiple investment teams — each with their own leaders — that focus on different industry sectors.
Some clubs manage real money: Queen’s University’s club, for example, manages nearly $US1 million on behalf of the school endowment.
And the students gain more real-world skills here than in any of their academic courses.
One student lamented what he learns in school relates solely to equity investing, and the skills he picks up are only transferable to a limited number of professions, namely, investment banking and value investing. What if you want to learn about credit markets?
Another noted that, while some schools offer courses on things like financial derivatives, students don’t learn anything beyond basic pricing models that would only work in a perfect market.
Goldman Sachs as a “backup plan.”
Ultimately, the reason students join investing clubs is to pave the way to a career on the buy side sooner rather than later.
“Let’s face it,” said one Wharton student who’s currently interning at a hedge fund. “We’re all going to get jobs in banking.”
The only question, he continued, is whether they can skip the two-year banking experience that most young Wall Streeters endure and go straight to a hedge fund after graduation.
That student said that among Wharton’s elite investment club, an internship at Goldman Sachs would be viewed as a back-up plan.
Of course, that’s not the case for everybody in these clubs. You have to honestly be passionate about investing to succeed.
Another Ivy League student noted that if your self-education stops with merely joining a club and showing up to meetings, it won’t be enough to catapult you to the buy side.
That student spends all his free time poring over credit analyses and books written by his favourite hedge fund managers. Now he, too, is interning at a hedge fund.
He said that “a monkey” could do the job of a junior banker. But he knows that you have to “do it for yourself” — and provide your own self-education — in order to skip over that experience.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.