Course Number 1446
Professor Luis M. Viceira
Fall; Q1Q2; 3 credits
This course is suitable for all students interested in gaining a broad perspective on investing and the asset management business, including those targeting careers in finance as well as those interested in personal wealth management.
Specifically, this is a CORE course for students pursuing careers in mutual funds, hedge funds, pension funds, endowments, wealth management, financial consulting, financial marketing and client service, sales and trading, investment banking, private equity, venture capital, and corporate finance. More broadly, many students have found that a thorough understanding of capital markets and the business of investment management is valuable in managing their personal wealth as well as in a wide set of careers outside of finance.
There are two CORE courses in capital markets in the elective curriculum: Investment Management and Investment Strategies. The focus of Investment Management is on the money management industry. The course takes the perspective of both the managers of asset management firms and institutional investors like endowments and sovereign wealth funds. From these viewpoints, students consider issues of growth and profitability, product design and innovation, client engagement, organizational design, performance evaluation, asset allocation, and portfolio risk management. The focus of Investment Strategies is on financial markets, principally equity markets, taking the perspective of a portfolio manager and considering the efficacy of value investing, growth investing, arbitrage, macroeconomic investing, tactical asset allocation, and other active investment strategies.
The goal of this course is to develop a broad perspective on investing and the asset management business. Students develop an understanding of the challenges around leading, managing, and growing modern money management firms. By taking the perspective of both money managers as well as institutional investors, students develop a multi-faceted understanding of the industry. This perspective is valuable to every student, including those not interested in pursuing a career in this industry but who are interested nonetheless in developing a sophisticated understanding of personal wealth management.
This course will present cases that reflect the realities of large and small investment firms and institutional investors, both leading and lagging. It will develop the conceptual frameworks and tools to assess their strategic options and formulate solutions.
The course applies these tools in a variety of contexts, considering among others the problems of
- investment managers raising capital and generating high risk-adjusted returns for their clients and investors;
- sophisticated investors such as high net worth individuals, pensions, sovereign wealth funds, and endowments allocating their investment capital;
- entrepreneurs innovating in the area of investment technology ("fintech");
- manufacturing and designing new investment products and vehicles that disrupt the industry.
Content and Organization
The topics covered in the course are selected from real-world cases to capture the most pressing issues facing the investment management landscape today. Classes often feature case protagonists and money managers directly related to the case topic as guest speakers to help develop an up-close perspective on the issues raised in the case discussion. Students are expected to delve into the issues and problems presented in the case with analytical rigor, and encouraged to argue with one another their differential analysis and perspectives.
The course explores such topics as:
- Evaluation of risk, return, and opportunity at the asset class level
- Risk management and portfolio construction, including asset-liability management
- Investor psychology and personal wealth management
- Investing styles and the search for edge in the "alpha" space and the "beta" space
- Innovation and entrepreneurship in the money management industry
- Disruptive innovations in the money management industry
- Seeding and selecting investment managers
- Investing tools, liquidity management, balance sheet management, and fund raising
- Evaluation of investment performance and the factors that influence performance
- Compensation policies for investment firms and investment professionals
- Organizational design and culture of investment organizations
- Analysis of business models, growth strategies, scale, and profitability of money management firms
- Valuation of the money management firm and the decision to go public
- Failure of investment organizations
- Market intermediation
Each topic is explored along four dimensions:
- Clients and investors
- Investment vehicles
- Investment organizations
The course has an eminently practice-oriented focus, so materials consist of cases and a course textbook.
The course has 28 sessions followed by a final exam.