Course Number 1446
Professor Luis M. Viceira
Fall; Q1Q2; 3 credits
Investment Management is suitable for all students interested in gaining a broad perspective on investing and the asset management business, including those targeting careers in finance and those interested in personal wealth management.
Specifically, this is a CORE course for students pursuing careers in hedge funds, mutual funds, wealth management, endowments, pension funds, financial consulting, 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 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 asset allocation, growth and profitability, portfolio risk management, performance evaluation, product design and innovation, client engagement, and organizational design. 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, 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 quantitative and qualitative tools to evaluate asset classes, financial instruments, and investment vehicles. They also 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 market leaders and laggards. 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 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, sovereign wealth funds, endowments, and pensions allocating their investment capital across asset classes, investment vehicles, and investment managers;
- entrepreneurs innovating in the area of investment technology ("FinTech");
- investment managers manufacturing and designing new investment products and vehicles that disrupt the industry.
Content and Organization
The topics covered in the course are from real-world cases that capture the most pressing issues facing the investment management landscape today. Classes often feature case protagonists as guest speakers, which last year included Seth Klarman from Baupost, Nobel Laureate Robert Shiller, William McNabb from Vanguard, Tom Hillison from Blacksone, and among others. Students are expected to delve into the issues presented in the case with analytical rigor.
Cases will be examined from four broad perspectives: markets and investment vehicles, innovation and entrepreneurship in the asset management industry, clients and investors, and the management and growth of investment organizations.
The course explores such topics including:
- Evaluation of risk and return at the asset class level
- Risk management and portfolio construction, including asset-liability management
- Investor psychology and personal wealth management
- Investing tools and vehicles (ETFs, mutual funds, hedge funds, pension funds, fixed income instruments, etc.)
- Spread trading
- Investing styles and the search for edge in the "alpha" space and the "beta" space
- Evaluation of investment performance and the factors that influence performance
- Seeding and selecting investment managers
- Liquidity management, balance sheet management, fund raising, and compensation policies
- 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-based financial intermediation
- Entrepreneurship in the money management industry
- Disruptive innovations in the money management industry