Sunday, 28 December 2008 08:00
Jaison Ipe was about two minutes into his introduction of Silk L.L.C., a mock hedge fund, when the questions started flying.
Why was the fund focusing only on biotechnology and not specialty pharmaceuticals? What was behind its name? Who were the scientists the fund planned to work with?
Mr. Ipe, a second-year student at the Yale School of Management, gamely gave answers, but the panel of bona fide hedge fund insiders gathered to judge his teams presentation kept peppering them with questions.
Twenty minutes went by in what felt like 45 seconds, said Michael Shay, who led the Silk team.
The exercise was an unusual example of increasing efforts by business schools to educate students in the skills and knowledge most relevant to running hedge funds.
Hedge funds have become such a big factor in financial markets that in order to make sure your students knowledge base is current, you really have to cover hedge funds somewhere in the curriculum, said Andrew W. Lo, professor at the M.I.T. Sloan School of Management and director of the M.I.T. Laboratory for Financial Engineering.
Students at Sloan and other major business schools encounter aspects of hedge funds in classes like investment management, financial engineering, endowment management, even entrepreneurship.
But Yale is among a handful of colleges in the New York area, including New York University, Columbia and Cornell, that go a step further and offer a course in hedge fund administration and operations taught by someone with real-world experience, Leon M. Metzger.
Members who are looking to learn the secrets of moneymaking are advised to register for other investment management courses, Mr. Metzger writes in the syllabus, which is styled after an offering memorandum for a hedge fund.
Mr. Metzger worked for 18 years at Paloma Partners, one of the granddaddies of the hedge fund industry, and he likes to remind people that more hedge funds blow up because of poor administrative controls than poor investments.
Regardless of the investment strategy, Mr. Metzger said, if the firm lacks sound risk management, best valuation practices and top-notch operational controls, it is a candidate for failure.
Sharon M. Oster, dean of the Yale School of Management, says teachers with real-life experience offer a valuable complement to the academic curriculum.
As a former practitioner, Mr. Metzger grounds the class in current events and practical application of theory. For instance, the class devoted to valuation involved a three-hour discussion of Merrill Lynchs sale of $30 billion of collateralized debt obligations to the Lone Star Funds for 22 cents on the dollar and financing support.
Talking about valuations is slightly more interesting than watching grass grow or paint dry, but talking about this sale brings the topic to life, Mr. Metzger said.
Jacob Navon, an executive recruiter who was among the nine judges who bombarded the Silk team and another group of students presenting their mock hedge fund, said he thought schooling them in presentation and other practical skills was invaluable.
That’s an angle not uniformly taught, Mr. Navon said.
Interestingly, few of the students in the class planned to pursue a career in hedge funds.
I knew a long time ago what I was going to be doing, and it wasn’t hedge funds, said Yulee Newsome, who will be joining Dow Chemical when he graduates. But it seemed to me that I would be pretty remiss if I left business school and didn’t know about one of the more important aspects of finance.
Mr. Newsome, whose first career was as a nuclear engineer aboard a Navy submarine, was a member of a team that tried to sell the judges on a strategy that played investments in oil off against investments in alternative energy.
We emphasized one type of trade in our presentation, so I was a little concerned that they were going to look at us as a one-trick pony, though I thought the judges quite liked what we presented, said Jonathan Morris, who used his experience on a commodities trading desk last summer to shape the concept.
Learning that I can get in front of a group like that and impress them gives me added confidence as I look to move into the hedge fund industry.