Alpha Waves: The Pebble in The Pond

1/20/2011 12:00:00 AM

I teach a course at Cornell’s Johnson School of Business called In Search of Alpha. Hardly an original name but a topic intended to attract interest from both aspiring money managers and capital markets students. Who am I kidding? It’s an introduction to hedge funds and God knows everyone in business school or college, for that matter, wants to be a hedge fund manager the same way that the techies all want to be the next Mark Zuckerberg.

Actually, a funny thing has even happened to the techies, that is to say, the engineers with quantitative bents. The last ten years, more or less equating to the millennial upsurge in hedge funds, has seen the advent of a relatively new field of study in engineering aptly called Financial Engineering. Today it is mostly a post-graduate program for 12-18 months for quantitatively oriented students to get practical experience in applying their technical prowess to solving complex financial issues. I have heard anecdotally (no empirical sources available) that 40% of incoming freshman engineers at Cornell, when asked their intended field of study, say Financial Engineering. What does this mean? It means everybody wants to be a hedge fund manager.

Given this predisposition and given my “listen to what the market tells you” experience from 35 years on Wall Street, I decided to orient my teaching, which is clearly intended to be a practicum devoid of most things scholarly or purely academic, to three things that interest me deeply. The first is the what and why of this once arcane and now ubiquitous form of investing called hedge funds. The second is on the operational and diligence aspects involved with hedge funds (In a course called Operational Alpha, hoping that Citadel takes academic mercy on their copyright to that moniker), with a heavy emphasis on the even-more arcane area of securities lending and finance. And the third is called Liability Driven Alpha, which is a fancy name for a pension course, but is also intended to focus on the role that alternatives (particularly hedge funds) are playing in pension fund management.

This “Alpha Series” of courses is intended as a full year primer for aspiring hedge fund managers, who are learning their investment and fundamental skills in other courses, but need a practical lesson in what goes on in the real world of finance around this topic. As is typical of most fleeting fancies of students, the first course is twice as popular (indeed, always oversold and on allocation) as the nitty gritty second and third course, even though those carry even higher student evaluation scores.

Why do I trouble COO Connect readers with this academic trivia? Because it is neither academic nor trivial. It may be no surprise that everyone wants to be a hedge fund manager, but it might be surprising the extent to which these students are going to in preparation for this quest. What I do want every COO out there to know is that I spend time in all three courses talking specifically about the “Voice of the COO” and giving students as deep an appreciation for the importance of the operational side of hedge fund management as I can. I tell them that it can be the make-or-break of most hedge fund businesses and that many of them (those that are not destined to be great investors per se) would be well served to consider a career path that led them to a COO role in a major hedge fund. Hopefully, this will start to tap this groundswell of student interest in the hedge fund arena and channel it appropriately to a mix of investor, analytical, tactical and operational paths that will provide a flow of the best and brightest to all the areas that need it most.


Rich Marin is the chairman and CEO of the Africa Israel Investment Fund (AFI USA), a major real estate investor in New York City. Prior to joining AFI USA, he was a consultant to a hedge fund. A former Bankers Trust derivatives executive, he was CEO of Bear Stearns Asset Management from 2003 to 2007. Rich Marin is also an Executive in Residence at the Graduate School of Management at Cornell University, the school from which he graduated in economics and from where he earned his MBA.


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