1 Introducing the Course

These notes summarize, discuss, and add commentary to the articles and cases that we are discussing during our brief time together this semester. Hopefully, you find them useful

What are the current discussions and controversies going on in asset management? What issues will you face if you work at a wealth management firm? How about if you are assisting hedge funds with their Bloomberg or Factset software? Or working with clients at an investment management firm, like Blackrock or Vanguard? Does it matter that Wall Street Bets (WSB) has discovered small-value investing and Gamma squeezes? In this two-credit, half-semester course, we are going to think about these issues.

Investments is a large topic – we are going to focus on the big picture. But, first, let me tell you what we will not be discussing: firm valuation, stock selection, derivative pricing, portfolio mathematics, risk management, fixed income investing, the details of trading, or anything related to deal structures and investment banking. We already have courses that cover many of these areas and they are better suited for a full semester, rather than our brief time together. Instead, I have selected topics related to the decisions faced by institutional investors.

Two major themes will emerge. First, where do returns come from? How can we break down a strategy into sources of returns? How can we assess the performance of an investment manager? Second, what is the current state of the asset management business? Is active vs. passive a useful framework? Where do private investments, like private equity and venture capital, fit into the portfolio? And how are new trends, such as ESG investing, changing the types of products that investors are seeking?

I’ll do my best to place all of these topics into context with what is currently happening in markets. It is an interesting time, to say the least.

1.1 Latest Update

We are now up through Chapter 4. I’m still fixing typos, of course.

1.2 How These Notes Are Structured

On the left, you’ll find the chapter markers. Each chapter corresponds, I hope, to a week of material. Each chapter also has a corresponding case or simulation, which you will find on our Moodle page.

  • Chapter 2 discusses risk and the current thinking of both academics and practitioners about sources of return.
  • Chapter 3 gives you details on how to think about the current asset management business. We are beyond just active vs. passive now.
  • Chapter 4 covers the current market environment. I guess that this means I need to talk about Robinhood, TSLA, TikTok, and WSB. Not to mention that death of value investing and whether anything in these notes is actually correct.
  • Chapter 5 introduces asset allocation and the idea of estimating (predicting?) long-run returns. Anyone saving for retirement might be interested in this.
  • Chapter 6 discusses the importance of private markets and how private equity and venture capital might fit (or not) into a portfolio.
  • Chapter 7 details the rise of ESG investing and how expected returns and risk are not the only things that influence our investment decisions.