Despite bleak news from Wall Street, Freeman students may be better positioned than most to weather the current financial storm.
By Mark Miester
It was the best of times. It was the worst of times.
In January 2008, the Financial Times ranked the Freeman School's finance program 10th best in the world, placing Freeman alongside such traditional finance powerhouses as New York University, the University of Chicago and the Wharton School. For a small program located far from Wall Street, the Top 10 ranking was a welcome sign of recognition as well as a tremendous marketing coup.
Eight months later, the finance world sat on the brink of collapse. The investment banking industry-the industry to which Freeman traditionally sends most of its graduates-has essentially ceased to exist, and experts have been left to ponder a global financial future far different from what we've seen in the past. As of December 2008, the U.S. stock market has lost trillions of dollars in value, and Wall Street firms have announced more than 150,000 job cuts worldwide with more expected.
"I have never seen it like this ever," says Peter Ricchiuti, assistant dean and research director of the Freeman School's Burkenroad Reports equity research program. "We have companies we follow-good companies-that are down 70 percent on the year. It's brutal."
You may have to dig a little, but the news is not uniformly bleak. If there is a bright side to the financial crisis for the Freeman School, it is that many of the reasons Freeman fared so well in January's Financial Times ranking are also reasons why Freeman students may be better positioned than their peers to weather the current economic storm.
According to the people who know the Freeman School's finance program best--its professors, students, alumni and recruiters--the school's size, location and wide variety of applied skills courses may help insulate students from the worst of the financial crisis and better prepare them for success when the crisis subsides.
Being a relatively small school in competition against larger institutions has its drawbacks, but the Freeman School's size can also be an advantage. Case in point: Ravi Suria's spring 2008 course Topics in Global Finance and Asset Valuation.
In December 2007, Suria (MBA '95), managing partner of Valmiki Capital Management and a well-known analyst and money manager, casually mentioned to Associate Dean Peggy Babin that he planned to spend the winter in New Orleans. Recognizing an opportunity, Babin asked Suria if he'd be interested in teaching a course based on his experience on Wall Street. Suria told her he would be, so Babin contacted Venkat Subramaniam, then associate dean for graduate programs, and asked if there was any way to add a new course to the spring schedule.
While the idea of creating a new course less than a month before the beginning of the semester would be virtually inconceivable at most large schools, Subramanian said why not. He worked with Suria to ensure that the content of the course would meet school standards, got the graduate curriculum committee to fast-track the course's approval, and then contacted MBA, MFIN and MACCT students directly to notify them of this late addition to the course listing. Suria's class turned out to be a favorite among students.
"It was one of the most useful classes I took," says Josh Jayne (MFIN '08). "His class stepped away from the numbers and focused on understanding the fundamentals that drive the economy. He taught us that you can use common sense to figure out where the market is going to go."
"We were able to accomplish that class because we're a relatively small school and we were able to move quickly," Subramanian says. "If we had 300 MFIN students and 500 MBA students, I don't think we could be as responsive. Size does make a difference, and being small allows us to make changes and improvements to our curriculum very quickly. And I think that's something we do very well."
Subramaniam adds that the Freeman School's size will also make it easier to revise the curriculum to take into account the changing world of finance. He expects the Freeman School to incorporate more fundamental economic analysis-like the kind offered in Suria's class-into the MBA and MFIN core and valuation courses.
Paul Spindt knows the Freeman School finance faculty as well as anyone. The Keehn Berry Chair of Banking and Finance, Spindt joined the Freeman School in 1990 after serving for four years in the research and statistics division of the Federal Reserve. Since then, he's been one of the Freeman School's most productive researchers, contributing more than a dozen articles to top-tier finance journals. Since 1998 Spindt has served as area coordinator for finance, a position analogous to department chairman.
Spindt says the Freeman School's finance faculty is unusual for its being both very focused and very prolific: Freeman faculty members tend to specialize in empirical corporate finance, and they tend to produce a disproportionate volume of research. In 2006, Thomson Scientific ranked the Freeman School in the top 1 percent of institutions according to citations in business and economics, and Arizona State's W. P. Carey School of Business ranked the Freeman School's finance department 38th in the world according to articles published in the top finance journals between 1998 and 2007. Worth noting is that those feats were accomplished with a finance department that's just a quarter the size of top-ranked finance departments like University of Chicago and New York University.
Freeman School faculty members like Tom Noe, Rob Hansen, Sheri Tice, Bill Reese, David Lesmond, Russ Robins and John Hund are prolific, well-regarded researchers in finance. Noe in particular has authored a remarkable 27 articles in refereed journals since joining the Freeman School in 1997, which in the academic world is superstar-level productivity. Among the younger faculty, Yufeng Han and Zhi Li have each published well-received papers in top journals.
"I think we have a strong basis in contemporary research and a group of people that work together very well, and we leverage that to build a curriculum around a developing body of knowledge, not just the same old stuff that appears in textbooks," Spindt says. "We provide our students with the opportunity to stay current and we bring that research into very practical settings."
And it doesn't get much more practical than the current financial crisis. Spindt says the finance faculty, with its research emphasis on corporate finance, is particularly well qualified to help students understand the crisis and its effects on financial policy and governance.
"Firms are not going to have access to the high levels of leverage that they had before, and our faculty, I think, is well positioned to understand the effects of that shift in capital structure," Spindt says. "CEO compensation, whether management should be compensated in cash or options, whether you should bring in more or fewer outside directors-these are also topics that our faculty is well positioned to investigate and subsequently teach."
If you were forced to pick a decisive moment in the history of the Freeman School's finance program, it would most likely be the fall of 1993, when Peter Ricchiuti, then director of the Career Management Center, created a new program to help give students an edge in the job market.
"We just didn't have the mass to make it worthwhile for recruiters to come down here," says Ricchiuti. "We had to do something really radical to make a difference, and I think we really hit on something with experiential learning."
Using economic development as his pitch, Ricchiuti won a grant from the state to purchase Bloomberg terminals for students to use in preparing investment research reports on Louisiana-based public companies. The idea was to cover the state's small-cap companies-little-known firms like Bayou Steel and Melamine Chemicals-the same way Wall Street analysts cover Microsoft and GE. By publishing the reports and distributing them to investment professionals around the country, the program would give students real-world experience as equity analysts-experience their peers at other top business schools lacked-while at the same time highlighting these traditionally underfollowed Louisiana companies.
In the last 15 years, Burkenroad Reports-as the program eventually came to be known-has done more to differentiate the Freeman School from competitors than any other program. From its humble beginning with 24 students covering six "stocks under rocks," the program, named in recognition of an endowment gift from the Burkenroad family, has grown into a nationally acclaimed investment research program with more than 200 student analysts covering 40 small-cap companies in six states. Since 2006, Burkenroad Reports has satisfied the Practice of Management requirement for full-time MBA students, and it is also offered as an elective to BSMs, MFINs and MACCTs.
To date, more than 400 graduates of the program have gone on to careers on Wall Street, and the annual Burkenroad Reports Investment Conference regularly attracts hundreds of investors eager to meet the management of companies highlighted by the student analysts. Burkenroad Reports has been profiled in the New York Times, the Wall Street Journal, Barron's, Kiplinger's, the Washington Post, the Chronicle of Higher Education and Investors Business Daily. It's also been featured on CNN, Nightly Business Report and Wall Street Week with Fortune. More than 15 years after its founding, Burkenroad Reports is still the only university-based equity analysis program in the country.
According to Ricchiuti, Burkenroad Reports has been such a phenomenal success because it managed to transform two of the Freeman School's perceived weaknesses-its small size and geographic isolation-into competitive advantages.
With just 200 MBAs, the Freeman School is the perfect size for a program like Burkenroad. Ricchiuti can assign teams of five students each to cover 40 companies and still have enough time to oversee the program and ensure the quality of the students' analysis. At a school like Wharton, with 1,600 MBAs, a program like Burkenroad would be a logistical nightmare.
"The other thing-the thing that nobody understands-is that we have an advantage geographically," Ricchiuti says. "There's not much of an investment community down here in the swamps, and because of that Wall Street was missing out on a lot of companies. That turned out to be a tremendous opportunity for us."
In his book One Up On Wall Street, Peter Lynch describes a hypothetical dream stock. The fictional company, Cajun Cleansers, is an obscure firm located in the swamps of Louisiana, and no Wall Street analysts have ever paid it a visit. The company does an outstanding job doing a mundane task--removing mildew from leather--and it has a legion of devoted customers, no debt and a strong history of growth.
If Lynch weren't talking about a fictional business, he could just as well be describing the typical Burkenroad Reports company.
"Burkenroad Reports is one of the great programs of the Freeman School," says Rick Rees (A&S '74, MBA '75), principal with the private equity firm LongueVue Capital and chairman of the Business School Council. "There's no replacement for experiential learning, and Freeman graduates definitely have a leg up on graduates from other schools."
Burkenroad Reports wasn't around when Rees attended the Freeman School, but it's a safe bet he would have participated. Rees attended Tulane on an undergraduate scholarship and overloaded his schedule to earn both a BA and an MBA in four years. Immediately after his graduation in 1975, he joined Halter Marine, which had been founded by the father of a friend. By 1978-at the age of 25-Rees was CFO of the $150 million company.
Trinity Marine purchased Halter in 1983, and since then Rees has worked in private equity. With partners, he invested in a number of marine properties, including Texas Drydock, which he later sold to a public company, and Penn Terminals, a marine stevedoring and terminal operation which was recently sold to Australia's Macquarie Bank.
In 2001, Rees and John McNamara, another member of the Business School Council, founded LongueVue Capital, which raises funds from high net worth individuals for investment in companies spanning diverse industries.
Rees, who is also a member of the Board of Tulane, says he's hired and worked with graduates from Freeman and from Top 10 business schools, and the Freeman graduates match up well. "The Freeman School alumni were as good as-if not better than-all the other finance majors I have worked with," Rees says.
Edward Crawford (MBA '08, MGM '09) can back up that observation with personal experience. During an internship with Morgan Stanley last summer, Crawford was the only Tulane student working alongside MBAs from top-ranked programs including Harvard, Wharton, UCLA, Dartmouth, University of Texas and NYU.
"When we compared what we were actually doing in class, a lot of it was the same-finance is finance," says Crawford, who earned his MBA last May and is currently finishing up the Global MBA program. "What really stood out was the hands-on experience I had gotten at Freeman. None of the other MBAs had any idea how to trade currencies, but I did because I'd taken a trading class. I was really surprised at how many more hands-on classes are offered at Freeman compared to bigger schools."
According to Ricchiuti, those hands-on classes may give Freeman students an edge during tough economic times.
"Employers recognize that our students can hit the ground running and contribute to the firm right away," Ricchiuti says. "In good times, that doesn't seem as important, but at times like this, it's a lot easier to sell shareholders on someone who can come in and make an impact right away."
Ben Abramson agrees. Abramson is director of human resources and administrative services with Sequent Energy in Houston, which sponsors an annual scholarship program for Freeman students as well as providing support for the Tulane Energy Institute. A big reason for that involvement is the hands-on experience students get through the Freeman School's energy trading courses.
"That real-world perspective allows students to get a better understanding of what the industry is about and what it has to offer them," says Abramson. "A lot of other universities don't give that hands-on perspective that Tulane does and that's an advantage for students."
"Clearly students who have been exposed to the energy industry through Burkenroad Reports, the Tulane Energy Institute and energy trading courses are a step ahead of other students," adds Douglas Schantz, president of Sequent. "One of the reasons we established our relationship with the Freeman School is that we felt Freeman's graduates were especially well qualified to join our company and start contributing immediately. Hopefully, we'll be able to entice a few of those scholarship winners to come our way following graduation."
While being located far from New York has traditionally been viewed as a disadvantage for job seekers from Tulane, the financial crisis may have helped to even the playing field. The finance firms located nearest to the Freeman School-firms like Howard Weil in New Orleans, Raymond James in Tampa and Simmons & Co. in Houston-have generally performed better than their New York counterparts.
"The companies that we're ingrained with are doing a lot better than the New York bulge bracket firms that every school is aiming for," Ricchiuti says. "I think the fact that we're located in the South as opposed to the Northeast really gives our students an advantage with these companies."
Another advantage Freeman students have--and one that only Freeman students have--is an inside track with the companies followed by Burkenroad Reports. For the first time in 15 years, Ricchiuti says students are asking him about opportunities with Burkenroad Reports companies.
"That's never ever happened," Ricchiuti says. "I think everybody was kind of blind to these companies up until this collapse, but now they're realizing that they can offer really great careers."
The Darwin Fenner Fund
When Paul Spindt asked Sheri Tice, associate professor of finance, to take over the Darwin S. Fenner Student Managed Fund in 2001, she had a few stipulations.
The program had been started in 1999 by accounting professor Prem Jain as part of an investment course he taught, but through a combination of bad timing and some risky investments on the part of students, the $2 million fund lost money in its first two years, and the university was seriously considering ending the program altogether.
Tice agreed to take over supervision of the fund, but only if she could reorganize the program to emphasize rigorous academic content.
"One of the challenges with experiential learning classes is they sometimes don't have a lot of academic content," Tice says. "We didn't just want students to invest, we wanted them to apply what they were learning."
Beginning in spring 2002, Tice made the fund the centerpiece of an invitation-only honors seminar. Using behavioral economics as a theoretical foundation, students read current research papers on value investing and apply those concepts to try to identify stocks that are mispriced. Teams of students analyze individual sectors and develop their own highly sophisticated models for screening stocks and identifying values. At the end of the semester, each team gives its recommendations to the class, carefully explaining its models and assumptions. The class then votes on which stocks to purchase for the fund and which stocks to sell.
Since its reorganization in 2002, the Darwin Fenner Student Managed Fund has consistently outperformed the market. The cumulative wealth of $100 invested in the Darwin Fenner Large-Cap Fund since 2002 is $146, whereas the cumulative wealth of $100 in the S&P 500 is $132. The cumulative wealth of $100 invested in the Darwin Fenner Mid-Cap fund, a more recently launched fund managed by MBAs and MFINs, is $165 whereas the cumulative wealth of $100 in the S&P 400 is just $135.
Of course the biggest benefit of the fund-even bigger than the return it generates for the university-is the boost it gives students in the job search. Few job candidates can claim they managed a $2 million portfolio, and even fewer can talk about the sophisticated theories they applied in managing that portfolio.
While jobs in investment banking may be hard to come by in the next few years, Tice says the Darwin Fenner Fund gives students hands-on experience in money management, a field that's likely to become a much more popular destination for finance grads.
"Our MBAs and BSMs traditionally didn't really think about managing money," Tice says. "The Darwin Fenner Fund has opened up a whole new realm of jobs to them. You don't have to be an investment banker in New York. There are other things you can do."
The Trading Center
A third major development in the Freeman School's finance program occurred in 2004 with the opening of the Trading Center, a $2.5 million electronic classroom equipped with industry-leading software from FEA, Oracle, Reuters, Advantage Futures and Trading Technologies. This simulated trading floor serves as a hands-on laboratory for the teaching of energy, risk management, equities and options and enabled Freeman to dramatically expand and enhance its applied trading courses.
Clinical professor Joe LeBlanc, former treasurer with independent oil and gas exploration company Energy Partners, has taught Energy Fundamentals & Trading in the Trading Center since 2007.
"I think the trading class we've developed is unique in that it causes students to apply the theories they've been learning," LeBlanc says. "They have to take those theories, develop a trading strategy, stand up and present it, coordinate it with the class and then execute it when the market moves. You see an emergence of skills they never knew they had, and you really see the emergence of the professional."
While the focus of the class is on energy-"from drill bit to burner tip" is how he describes it-LeBlanc says the approach to trading taught in the course can be applied to any market. "One of my students did an internship on the London Metal Exchange and used the same approach we use in this class to understand that market," LeBlanc says. "If you take one area of trading and look at it the way we do and really think about how the dynamics work, you can apply that method to any market."
LeBlanc was instrumental in bringing the Reuters Market Data System and the Reuters ReplayService to the Trading Center. Freeman is the first and only business school to combine the Market Data System and the ReplayService in the classroom. Using the system, LeBlanc can program data to simulate virtually any market condition he chooses, whether it's the events leading up to Hurricane Katrina or the aftermath of the latest announcement from OPEC.
Thanks to a generous gift from Trading Technologies, students in LeBlanc's class also have access to that company's software, the industry's most powerful and widely used
"The gift of Trading Technologies is a great opportunity for the Freeman School," says Ray Cahnman (MBA '69), chairman of Transmarket Group LLC. "Anyone with experience using Trading Technologies has a leg up on the competition. I'd be very interested in interviewing students with that kind of experience, and I've got 200 traders all over the world."
LeBlanc's course also works hand in hand with a special energy certificate program coordinated by the Tulane Energy Institute. Students wishing to broaden their knowledge of the industry can add an energy specialist certification to their degree by taking nine credit hours of courses that focus in some way on the energy industry. The combination of hands-on experience with energy trading as well as the broader knowledge of the industry that goes with the certificate program gives Freeman students a strong edge with energy companies and, surprisingly, non-energy companies, too.
"The Gulf Coast region is the heart of the energy industry, and whatever happens in energy has an impact on everything," says Jon Streiby (MBA '08), an associate in the investment management division of Goldman Sachs in Houston, who earned the energy specialist certificate. "I think the energy specialist program definitely opens more opportunities for you, especially now."
While finance majors may face a difficult job market in the near term, Ricchiuti says the skill set that students learn at the Freeman School is a unique one and the future-believe it or not-remains bright.
"We expose students to so many different aspects of finance that when one door shuts, they know there are other things they can do," Ricchiuti says. "I think most students recognize that the golden coconut-the investment banking job in New York-is probably not going to happen, so they're looking at other things, like managing money for insurance companies or working for energy companies. As much as it might be a disappointment for them initially, I think in the long run our students are going to have very fine, happy careers in some of these smaller, off-the-beaten-path companies."
Last Updated 11/19/08