Alternative Facts
Today I got an email from my Department Chair (in Finance) at University of San Diego. He asked me if I would be willing to add a half of a course to my Spring 2022 schedule. It seems there is a need in the Masters of Finance program for someone to teach one half of a short course on Alternatives. There is an existing professor of real estate finance who will teach half of it and they need someone to teach the other half, which is on the subject of the all-other of alternatives, namely private equity, venture capital and hedge funds. I am always flattered to be asked to do anything and that is especially so for teaching since I am trying to establish my bona fides at USD, given that I am in my second year of teaching there. This would actually be my fourth course in addition to the various guest lectures I have given. I checked the schedule and it is taught on Fridays in late January to late February for three hours in the afternoon. Other than the obvious issue of Friday rush hour traffic, there is no schedule conflict for me, so after reviewing the syllabus (which had the usual stuff one discusses in the alternative investments world), I agreed to sign on.
It all happened rather quickly and I think my flexibility is one of my advantages to the Department Chair. he calls me when he needs to fill a gap and so far (twice now), I have made it all very easy for him. The truth is that unlike the course I am teaching now in Advanced Corporate Finance, a course in alternatives is a bit like falling off a log for me. I taught the hedge fund course at Cornell for ten years and I have both managed about a hundred hedge funds and started one and I have helped to start two venture capital funds. So, I think it is fair to say that I am very familiar with the territory of alternatives. What is also true is that I “retired” from my post at Cornell’s graduate business school after ten years there pretty much because I was tired of teaching the very popular and always oversubscribed hedge fund course. I felt I had lost a lot of faith in hedge funds as an investment format (note that I do NOT call it an asset class, since it is not one). I guess my willingness to accept this teaching post is some sort of indicator that I am over my disagreement with hedge funds and am willing to venture forth again into the world of alternatives teaching.
When I was at Cornell, one of the things that bothered me was that everyone wanted to a billionaire by launching a hedge fund and I was their first point of contact with the space. I guess I had to expect that business school students have a right to want to make money and hedge funds are certainly one of the flavors du jour in that department. What perhaps troubled me more was that about 40% of incoming Cornell engineering students say that they want to pursue a career in financial engineering, which is another way of saying that they want to turn their quantitative skills towards the direct of hedge fund investing. That did bother me. I think the world has so many physical problems that engineers are best equipped to attack that we need a lot more than 60% of the incoming class of a top-rated engineering school like Cornell to focus on something other than just making their fortune.
I suspect that is all very unfair of me since smart people should be able to pursue the paths that they choose and I opted for a career in finance rather than a career in development economics (my undergraduate major) at a key turning point in my life and I don’t recall getting any guff about it, even from my mother, who had spent her whole career in development work. I’m certain that my feelings on this topic have to do with my own feelings of guilt that I did not focus on something loftier than banking and investments for my career, but there is no reason for me to feel that way. I remember my mother telling me when I made my choice that the world needed ethical and right-thinking people in business as much as they needed them in development work. I was impressed at the time with her enlightened view. I want to find my path of enlightenment on this topic as well at this point.
I have explained that my main course for next semester is on business ethics, so I feel I have fed my need to help students find a solid ethical path. I also feel they need to be given realistic and pragmatic guidance about moving into the directions of higher finance and I feel I can give that to them and teach them some valuable and practical lessons as well. There are many false prophets in the alternative investment arena. False prophets gravitate to wherever the money is flowing. For twenty-five years now, its all been about hedge funds, even to the deference of recently hot arenas like private equity and venture capital. You see, hedge funds cash the checks every year. If they incur losses, they technically have to give back those gains until they are repaid. It’s called a High Water Mark and it has forced many a hedge fund to dissolve and fade into history while the proprietors sit out and wait for people to forget so they can start all over again, as silly as that sounds. I know many people in private equity and venture capital who watched what hedge funds were up to and decided that was a better format than sitting and waiting to reap your rewards through carried interest for seven to ten years.
But now the worm has decidedly turned again but for a very different reason than the last boom cycle in venture capital (late 1990’s) when companies were going public or getting sold in a blink of an eye, reaping VC rewards in as little as eighteen months. But now the SPAC boom has brought back the art of the quick turnaround and added considerably to it. Not only is there the opportunity to monetize quickly, but the new structure (as happens with many new gimmicks) is giving these deal-makes a windfall of massive proportions. For a mere $5-7 million ticket to the show, a SPAC sponsor can turn that into a couple hundred million…and do it over and over again. Its a brave new world and suddenly, hedge funds feel like a lot of work capturing constantly eroding arbitrages and the gains seem pitiful compared to the big bucks going to SPAC sponsors, who are more live VC’s and PE players than hedge fund mavens.
But my conundrum has gone as quickly as it came. The Department Chair emailed to say he had confused the need for a PE/VC/HF lecturer with that of a real estate alternative lecturer. So he gave me the option and he seemed happy to have me turn it down. I dodged another bullet in my quest to stay as far from the fast money game as I can. I will leave the alternative facts to those who enjoy alternative facts more than I do.