Most of you might be too young to worry about the end of Finance schools during the 2008 financial meltdown. It truly happened. Wharton, Booth, Columbia – all the biggies struggled to place their Finance candidates.
In the immortal words of Matthew McConaughey from Wolf of Street, “Number one rule of Wall Street - Nobody... and I don't care if you're Warren Buffet or if you're Jimmy Buffet, nobody knows if a stock is gonna go up, down, sideways or in fking circles.”
Having started with a disclaimer, I will give both for and against perspective on the factors that influence opportunities in a post-COVID economy for MBA candidates and aspirants.
Post-MBA Industry IMPACT
For: A 3-month downturn
Based on the data from China and South Korea, I am hopeful that by June 1st week, we can achieve 60-70% of the pre-COVID productivity. A normalization that wouldn’t allow us to move around freely but at least give us enough time to acclimatize to the ‘Work from Home’ paradigm. Since those in Technology and Finance industry are already integrated heavily with cloud services, the only major industry that would face immediate disruption is ‘Management Consulting.’
Against: A 3-month downturn
The recovery in South Korea and China is the best-case scenario that the US is unlikely to achieve. Although we are not as disconnected or under-resourced as we were during the 1918 Spanish flu that lasted for 3 years, global coordination doesn’t work in a diverse governing model as we have now. The business and politics of acquiring life-saving protective gear, trade wars, call against globalization, and supporting the unemployed would lead to a far higher cost to the government, prompting a faster rate of printing money and quicker devaluation of the US dollar. While beneficial for the emerging markets, the ripple effect of inflation that would follow the pandemic and the loans, deferred payment, and insurance claims would trigger a permanent slowdown of the hospitality, real estate, Oil & Gas, and travel industries.
The longer US takes to recover, the higher will be the default rate at retail and corporate levels. We are unlikely to see the upheaval in the Finance industry as we did in 2008. However, the first casualty of uneven incomes is real estate, especially office space, as expansion plans would be put on hold when the majority of the workforce becomes competent at working from home. Another risk is the higher probability of missing mortgage, rent, and EMI payments, leading to a second-order effect in risks to pension funds as these products are securitized and sold in stock markets.
For: Consulting will Pivot
From a Post-MBA placement perspective, management consulting that earned the reputation as recession-proof will face its first real challenge when travel becomes restricted. The encouraging aspect is that close to 50% of the global consulting market works outside traditional management consulting. When travel becomes restricted, businesses increasingly will seek the expertise of consultants for digitization, security, and establishing the processes and infrastructure for a fluid home-office. The high-end strategy consulting that is a favorite for candidates from Stanford, Kellogg, INSEAD, and Wharton, will remain unaffected as businesses would need a timely strategy on operations, digital, and M&A. Companies that were over-leveraged, blindly believing in a booming economy, would be forced to merge with their competitors and jointly sail the dynamics of a ‘cautious’ market.
Against: Consulting will Pivot
As someone who has helped hundreds of applicants create unique ‘consulting’ narratives, I know that most of you want to pivot into consulting after a rigorous 3-5 years in a technical role. Unfortunately, the $2000/hour billing that Consulting firms charge the clients is attributed to the ‘travel’ part of the process and physical presence of the consultant. The second wave of COVID that is likely to peak during October will once again put a strain on the consulting firm’s ability to charge high fees, leading to pay cuts or clearing out the lower 20 percentile of the workforce. Implementation driven metrics will soon feature into the consulting project’s KPI, and base salary is likely to go down in the short-term with the end of the year bonus stabilizing the total compensation. Additionally, since close to 50% of the Management consulting serve in operations, including supply chain management, Outsourcing, and Sales & Marketing, a slowdown in demand, from a conscious consumer, would lead to mass disruption in the service as an advisory role in the segment wouldn’t seem urgent until the consumer sentiment reverses.
For: Increased Demand for PE
PE firms have systematically decreased the number of deals over the past five years. Instead, they have focused on transactions that bring long-term value. This brings a unique advantage to the industry that has $1.5 trillion as cash in hand. If the 2008 data is any indicator, the firms will hold on to the portfolio companies for the next two quarters and then proceed to increase their equity stake in the companies, even participating in funding public companies. The share of M&A deal in global buyouts that remained below 15% will reverse by 2020 Q3, increasing the demand for PE and Finance professionals with M&A experience (direct and due diligence).
Against: Increased Demand for PE
Although the PE market has strategies and frameworks in place to manage the volatility of the markets, the S&P index ended with the biggest loss (20% decline) since 1987 for the quarter ending March 31st, 2020. The trend reversed in April, gaining back 30% of the losses. Unless the economy opens and we evaluate the second-order effects of markets with low consumer demands, it is too early to speculate. The oil prices crashing, fear of a second wave of infection, and limited mobility will start affecting the portfolio companies. In addition to the macro trends, the relaxed regulatory environment has encouraged LPs to amass leveraged debt at 3 times the rate as the 2008 global financial crisis.
Bank’s lenient assessment of borrowers based on projections instead of actual financials has created a system that is likely to face similar upheaval as 2008. A 20-25% decrease in recruitment in the PE/IB sector might occur if the asset bubble bursts.
For: Technology will see unprecedented growth
78% year on year growth for Quarter 4, attributed to the increase of daily users to 200 million, from the previous record of 10 million, has made Zoom the poster child of the Technology industry. For technologists working in AI, FinTech, and security, the post-COVID economy is bright. Telecom companies will enjoy a short-term resurgence as consumers demand reliable connection, forcing the introduction of 5g Technology at a rapid pace. For management professionals, even before COVID, the industry had saturated. When you compare with other industries, outside Tourism and Hospitality, where conservatively the loss is estimated at 20-30%, Technology continues to be recession-proof, with an estimate showing just a 2.7% decline in Global IT spending.
Against: Technology will see unprecedented growth
Restrictions imposed by lower mobility of non-essential items and change in customer behavior - save more instead of splurging on gadgets, will drive an 8.8% decline in spending on electronics with the smartphone market bearing the brunt of the slowdown. The eco-system related to devices would also face a second-order effect. With SMB – the largest market for Tech giants for cloud services, facing unprecedented pressure from low demand, will also postpone expenditure on server and hardware, spurring a network effect with reduced need for software-related ‘MBA’ jobs (Business Development, General Management, and Marketing).
For: Healthcare is the new Technology industry
Every brick and mortar company is turning into a Technology company. Healthcare is no different with a record 37 acquisitions in technology companies in 2019 - a vast majority (18/37) in software and an impressive 5/37 in advertising & marketing, and four in IT consulting and Service.
The acquisition reflects a larger trend in the post-MBA job market – Health care needs Technologists with an MBA title to boot, along with Sales/Marketing, Finance, and IT consulting professionals. PE professionals will be of the most value as in 2019 first half alone, the industry saw a record VC round ($1B) in Verily – Alphabet Inc’s research subsidiary, in addition to eight multibillion-dollar deals in MedTech valued at a total of $29.5 billion. The trend picked up for privately held start-ups that crossed $1bn in valuation, in niches as diverse as - data analytics for hospitals, a meditation app, patient management software, telemedicine, and robotic surgery.
Against: Healthcare is the new Technology industry
The pubic praise of doctors, nurses, and epidemiologists might hint that finally, the Healthcare industry is receiving the attention it deserves. The structural problems of a long timeline in drug discovery, the investment required to commercialize a molecule (patent cost and terms), and high failure rate (75%) cannot be mitigated just with AI and technology. Innovation in funding and refund, driven on the net positive a drug discovery process provides to the society, would encourage larger private investments into R&D. Till then, drug discovery is at the mercy of governments.
COVID, takes the focus away from promising developments in gene therapy and therapies in oncology, accelerating the poorer return on capital (ROC) that has been plummeting for Drug Manufacturers (11.9% from 16.6% in 2011), and MedTech (9.9% from 13.8% in 2011). The General Management and Marketing/Sales post-MBA jobs will also face pressure with a declining ROC.
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Consulting Industry – Markets
COVID-19's Influence on the US PE Market (PitchBook)
2019 Year in Review – PE Firms
IDC IT Report
IDC Expects Worldwide IT Spending to Decline by 2.7% in 2020 as COVID-19 Drives Down Forecasts
Deloitte 2020 Global Life Sciences Outlook