Tuesday, June 25, 2013

Georgetown Becomes The Consortium's 18th

Consortium Gets DC Footprint
On deck is Georgetown's McDonough School of Business.

This week The Consortium selected Georgetown's business school as the 18th Consortium school. Georgetown will join the other schools formally in July and start admitting Consortium students in the fall, 2014. Consortium Executive Director Peter Aranda made the announcement June 24, marking The Consortium's first new school in three years. Over the past five years, besides Georgetown, The Consortium has added Cornell, Yale, and UCLA and invited back UC-Berkeley after it departed in the early 2000s. 

Georgetown follows the footsteps of other prominent business schools affiliated with The Consortium, including such schools as Emory, USC, Yale, Texas, Dartmouth, Wisconsin, and North Carolina. 

What does Georgetown bring to The Consortium table? It gives the organization an immediate footprint in the Washington, DC, area.  Consortium business schools, often known nationally as top schools by just about anybody who ranks, rates or evaluates MBA schools, are scattered about the country with imprints in major metropolitan areas (e.g., New York, Los Angeles, Atlanta) and with a presence in most regions in the U.S.  But The Consortium had not had a representative school in Washington. The closest business school is Virginia's Darden School.

That attractive location is another plus for a prospective MBA student. Strong MBA applicants have well-reasoned criteria when they choose among top schools.  They examine and choose schools based on course offerings and curriculum, based on a school's strength in certain concentrations (finance, marketing, international business, e.g.), based on faculty and staff they meet in the wooing process, and based on a general vibe, a comfort feeling they are well-suited for the school.

They also may select a school based on geography.  Most strong applicants visualize their lives after school and try to determine where they want to launch careers, where opportunities will be plentiful and where they want to reside over the next decade.  Opportunities and lifestyle in Atlanta will, therefore, make Emory's business school attractive. Opportunities in technology entrepreneurship and Silicon Valley will make UC-Berkeley attractive. The lure of the Midwest will drive Indiana and Wisconsin to the top of lists. For years, NYU has benefited from being a long stone's throw from Wall Street.

Opportunities in international business and Washington being at the crossroads of critical activity in business, law, and government service make Georgetown attractive.

Georgetown's McDonough School is now under the helm of Dean David Thomas, who arrived on campus within the past two years after a heralded career as a professor at Harvard Business School. His specialty there for two decades was organization behavior and human-resource management.  He has already made impressions along the Potomac. For example, taking advantage of the university's strengths in international business and affairs, the business school now requires first-year students to spend three weeks studying the "Structure of Global Industries," which provides a blueprint for students to study all aspects of business from a global perspective.

Thomas apparently also figured the school could do better in diversity initiatives, starting with the student body.  Georgetown hired Shari Hubert as associate dean of admission to increase diversity in applicants and matriculating students. Hubert, an MBA graduate from Harvard, has extensive experience in recruiting in positions she held at Citigroup, GE Capital, and the Peace Corps. Joining The Consortium was an appropriate next step for Thomas and Georgetown.

The McDonough School's MBA program is of modest size by most standards with about 250 students in a full-time MBA class--about the size of Dartmouth's Tuck, not as big as the programs at NYU or Michigan.  (The school has about 1,000 MBA students--including part-time and executive programs--and about 1,400 undergraduates.)

Otherwise, its profile is as familiar as those at other Consortium schools.  Students typically have about five years of work experience and are about 27-28 years old on average. About 1,800 prospects apply to the full-time program with admission rates hovering around 35%.  About 30% of recent classes are women. Also like other top schools, a significant percentage of graduates go into finance (28% in a recent year) and consulting (26%).

This bundle of advantages will now make for tough decisions for the prospective Consortium applicant, who--if she decides she wants to remain on the East Coast--must ponder choosing among rich business-school experiences at Virginia, North Carolina, and now Georgetown.

Tracy Williams

See also:

CFN:  Cornell Makes 15, 2009
CFN:  Welcome Back UC-Berkeley, 2010
CFN:  California Dreamin': UCLA Joins The Consortium, 2010
CFN:  Is the MBA Under Attack, 2013?
CFN:  The Global Imperative on Campus, 2012

Tuesday, June 18, 2013

How Will Steven Cohen's Saga End?

Should investors take the money and run?
If you were fortunate to invest in Steven Cohen's hedge fund, what would you do? Keep the faith, and keep your funds in SAC Capital Advisors?  Or take the money and run, while government investigators pore through trading records for evidence of insider-trading?

How will the SAC Saga end?

Tucked away along I-95 on the winding hedge-fund corridor in Connecticut is the home of the closely cloaked $14 billion hedge fund run by Cohen.  In the world of quantitative trading and hedge-fund investing, Cohen's SAC Capital is well known, envied by many, desperately copied by others, and revered by most in the investment community. These days, the fund is known outside the hedge-fund world because of  the investigative cloud that lingers above it.

Since its 1992 founding, an obsessed Cohen permitted few to learn about his fund's operations, performance, and trading strategy.  For most of the fund's existence, Cohen avoided public appearances and showed up nowhere if media appeared, except for arts and charity events. (His investments in art are legendary.)

He refused to let others take photos of him. The New York Times or Wall Street Journal published over and over the same one or two photos it could find of him in articles that chronicle the fund's history. The industry factions that follow, watch, report and try to ape his successes hardly knew or understand what went on inside. Forbes magazine estimated his net worth recently to be about $8 billion. The fund eventually reached $14 billion under management.

Nowadays headlines of SAC appear routinely in the financial press. Photos of Cohen accompany many news stories, and his face has become more familiar.  News about the fund has been sour for much of the past year or two, because the news is primarily about insider-trading investigations. 

SAC made its billions from equity trading.  Under Cohen's direction, the fund sponsors many strategies, including high-frequency trading (searching for price anomalies around the globe), fundamental and value trading, and quantitative analysis.

Former analysts, traders and researchers at the fund--after they have departed or were dismissed--have divulged morsels of SAC intelligence.  Cohen is the quarterback and captain of all trading activity, his hands always involved, his voice wielding a final say-so in trading positions and strategies. He grooms strategies, hires stalwart traders, and entrusts them with significant amounts of capital, permitting them to try out their ideas or execute their trading views.

But he was said to be harsh if performance waned or fell shy of his expectations.  He pushed traders hard, not merely to "seek alpha" (as the hedge-fund jargon goes), but to out-perform even the toughest fund benchmarks. Traders are dismissed swiftly if they don't meet targets.

Traders felt the pressure to find an edge, a trading strategy or a performance trend that would please the boss.

Over the past few years, some former traders have been accused and indicted of insider trading at funds they managed after leaving SAC. Some former employees have been accused of illegal trading while at SAC Capital.  The SEC continues its investigation of trading under Cohen's supervision. He has insisted throughout he is innocent and, in recent months, has delivered strong statements assuring investors that from his top perch he has applied tough discipline to make sure the firm stays within legal lines.

Meanwhile, regulators and law-enforcement officials comb through, around and about SAC.  SAC Capital and Cohen may never be charged of anything, but right now, a stench hovers above the fund and seems to have settled there for a long time to come.  Some investors want out--now. The typical redemption rules apply. Investors can get out, but only after applying for withdrawals and then allowing their monies to trickle out over time. 

With investigators in its backyard searching through voluminous trading records, what will eventually happen to the fund? Why would investors want to hang around and leave large amounts of money with Cohen? He has an impressive performance record, but will he admit that he is distracted by the legal cases and investigations around him?

What does an investor do? There are two or three options.

1) Get out now or when redemption rules allow. 

Certain institutional investors (perhaps pension funds and public funds that answer to a broader community) will flee, because they will not want to explain to stakeholders why they are allied with a fund where illegal activity might have occurred and where there exists the possibility, even if remote, that the fund's founder will one day be indicted like some former employees.

2)  Assess the likelihood that Cohen will one day be charged, an event that would likely lead to the subsequent wind-down of the fund.

If that assessment exceeds 50-50, wage the bet that the fund will continue and, with distractions beyond it, performance will resume at stellar levels. Because there are and will be redemptions, Cohen may scale down the fund, reduce the number of strategies, and make itself nimble.

3) Assess the worst-case scenario:

Cohen is charge and indicted, and the evidence is strong enough for a conviction.  The fund would likely wind down. But markets, regulators, banks and investors must weigh the impact of a liquidation.

Would the impact cause as much market chaos as the frightening collapse at Long Term Capital did in 1998. Its stunning, sudden implosion pushed markets to the brink of apocalyptic turmoil and forced government overseers to assemble a bank group to help settle the chaos.

In this case, would regulators step up in the same way to ensure the disposition of assets, positions and employees is handled in an orderly manner and with minimal impact to markets? Or would a group of neighboring hedge funds, down the expressway in Connecticut, sweep through to bid for the portfolios and positions and hire its expert traders?

Stay tuned.  This is a summer-time saga, likely to drag out through the fall and long enough to bore most market observers, until one day months from now government investigators surface one late Friday afternoon to catch everybody off guard with surprise announcements.

Tracy Williams

See also:

CFN: Ray Dalio's Cult at Bridgewater Associates, 2011
CFN:  Quants and Quant Funds, 2010

Wednesday, June 5, 2013

Who's Headed into Finance in 2013?

Cornell attracts its share of Consortium finance MBAs
On your mark. Get set. This week, over 300 new Consortium students will launch their campaigns to earn an MBA by heading to New Orleans for the Consortium's 47th Orientation Program.  As in previous years, they will be engulfed by activity, events, recruiters, school staff, seminars, sponsors and celebratory gestures. For most of them, OP is a festive, uplifting time. They pause and take a week-long breath before embarking upon the frenetic pace of graduate business school. 

Among the new MBAs, who's headed into financial services in 2013?

How many among the 300-plus have expressed an interest in concentrating in finance at school or a career in financial services? As they take new twists and turns over the next two years, what do they aspire to do when graduation comes in 2015?

Let's consider the current environment.  The awful, dreadful financial crisis is receding into memory, although there is a haunting, lingering impact. The crisis and economic recession caused upheaval and changed the landscape at banks, broker/dealers, investment funds, insurance companies and private-equity firms.  Financial institutions are rushing to hire just as many experts in compliance, risk management, regulation and technology as they are in luring investment bankers, brokers, wealth managers, and traders.

With steady improvements in the economy  and with remarkable upturns in equity markets, this year's new MBA students won't need to whisper when they declare an interest in financial services. The job or role they dream of may actually exist in two years. Or the job or role may turn out to be something they never knew existed in their first days of a corporate-finance core course.

The new class of Consortium students, after the OP, will disperse and head off to 17 different Consortium business schools all across the country.  Of the total, over 130 have expressed some degree of interest in financial services, even if it is a tentative or preliminary interest. That number already suggests renewed confidence. In previous years, especially during the morale-plummeting crisis years, fewer than 100 dared to raise a hand to say they were interested in banking, trading or investment research.

Many of them, like other non-finance MBA students, are in career transition. Some are opting for finance after stints in other fields (non-profits, public service, engineering, or marketing).  Some are currently in banking or trading and will use the MBA (and what they learn in class) to leap from one segment to another (from, say, private banking to equity research).

No doubt they understand what they are about to take on.  They know this isn't the 1980s, when an MBA graduate Dartmouth could join Morgan Stanley's corporate-finance unit and plan to be there for 20-plus years and, with confidence, take steady, resolute steps to managing director.  They know it's possible Morgan Stanley may not exist (in the way we know it today) in 20 years. (Drexel Burnham, Bear Stearns, Salomon, and Lehman Brothers, favorite firms for MBAs in the 1980s, don't exist in 2013.)

They know they must plan a career in five-year segments. Even in finance, they know they must reinvent and rebrand themselves all the time and be willing to try something new when pushed against the wall. They know they must explore a variety of institutions, segments, roles, and options.  They know, too, the best opportunity may not be at Goldman or Citigroup, but could be at a regional investment fund, at a financial institution in Brazil or at a futures brokerage in Chicago.  If they don't know now, they will learn that roles in compliance, risk management and financial regulation are more valued by some banks than first-year jobs in M&A or on the currency desk.

MBA students in finance (including those at Consortium schools) tend to head to business schools with strengths in finance, where finance faculty are widely known and where finance recruiters swarm. They also head toward schools that already have a large concentration of students in finance. They want to be with others with similar aspirations or they don't want to be at a disadvantage. Like-minded students want to be with each other.

In this year's class, Cornell and NYU business schools will have the largest number of Consortium finance students. Michigan, Texas, Virginia, Yale and Indiana follow closely behind. These numbers are as expected, because these schools tend to support the largest numbers of Consortium students and some of them have historically attracted many students with an eye on Wall Street, banking, private equity, or investment management.

Students today, including Consortium students, are mindful to keep they must keep options open. When they are asked to indicate an interest before they start school, they will likely show many hands.  Many finance students will say they will pursue finance, plus something else. Often, that will be finance and consulting or finance and marketing.

Consortium students in the Class of '15 are similarly spreading their wings, while they have primary objectives. Over a dozen expressed an interest in venture capital and are likely aware of the difficulty in securing a position in a major venture firm, particularly one that resides on Sand Hill Road in Silicon Valley. Venture-capital firms hire MBAs from top schools and cherish candidates with strong technical experiences (and degrees), but are notably erratic in how they bring on whom they hire.

Another dozen or so are interested in investment banking. That wouldn't be unusual in any class. Despite the topsy-turvy world of investment banking (Who's laying off or reducing staff this week?), investment banking is still an important segment of finance, it will always be here, and there still remains the lure of working for such firms as Goldman Sachs, Lazard Freres, and JPMorgan.

Many more also say they will explore financial management, which captures areas from private banking and asset management to corporate finance at non-financial companies.  Others are interested in finance in specific industries:  real estate and energy, e.g.

The pairing of finance and consulting seems to be as popular as ever.  That might be a result of some students aiming for a particular firm experience (at, say, Goldman Sachs or Booz Allen or Blackstone), hopeful for an opportunity to have a prestigious, meaningful experience in their first few years and not necessarily loyal to a particular industry. Or they wish to be in an advisory function, which is what investment banking and consulting are about.

Not many expressed an interest in community banking, insurance, or financial brokerage.

Students willing to explore multiple concentrations also suggests a few more trends: (a) They know that the optimal dream job for an MBA graduate may not yet exist or is still in the making or (b) They may not yet be familiar with industry details to know they might be suitable for a certain segment. Many MBA candidates will learn over the next two years (or after they are hired by a financial institution) they are best suited for roles in risk management, audit, compliance or research.  The business-school experience is supposed to permit students to explore, get their feet wet in alien territory, and test new fields.

The daunting rat race of the recruiting process hastens the exploration effort, and that's unfortunate. It thrusts the new student into a boiling pot, where they must make career decisions overnight. Students declare where they will go to school in April or May, and by August, before they have sat through one marketing case study, they are swept into the helter-skelter pace of finding a summer internship.

For now, they get to explore, contemplate, and plan.

Tracy Williams

See also:

CFN:  Outlook for MBAs, 2013
CFN:  Consortium Orientation Program, NOLA-Bound, 2013
CFN:  Consortium Orientation Program, Minneapolis, 2012
CFN:  Consortium Orientation Program, 2011
CFN:  Consortium Orientation Program, Orlando, 2010
CFN:  Consortium Orientation Program, Charlotte, 2009