Yale SOM Course Spotlight: Pitching a Hedge Fund

“The best way to learn about hedge funds is to work at one,” says Leon M. Metzger, who teaches a course on hedge funds at Yale School of Management. “In this class, we try to simulate the experience, from start to finish.” A 45-page hedge fund-style offering memorandum, a.k.a. the course syllabus, guides students as they work in groups to develop their own proposals for new hedge funds.

Metzger, who is a lecturer in finance and former vice-chairman and chief administrative officer of Paloma Partners Management Company, has used this format to teach hedge funds since 2004, first at the Wharton School, and since 2006 at Yale SOM. Hedge funds have been hard hit by the economic crisis, so this semester, Metzger says he threw out at least 40% of the planned curriculum in order to learn from what has been taking place in the world financial markets.

As the semester-long course wraps up, students present their proposals to a panel of industry experts. During two class sessions near the end of the fall 2008 term, five groups of students made 20-minute pitches for new hedge funds before a group of judges that included hedge fund traders, managers and advisors.

After each pitch, the panel provided critiques and insights gathered from years in the field and days spent sitting through precisely these sorts of pitches from actual funds. Explaining the tough questioning, one judge said, “The investors who aren’t brutal aren’t here, they’ve already lost their money.” Or as another put it bluntly, “This is not Jerry McGuire. You don’t get me at hello.” But aspects of many proposals were highlighted as real opportunities, some of which students are considering pursuing after graduation.

Though it wasn’t apparent what form change will take, that this is a turning point for hedge funds was broadly understood. Some expected a large number of funds to close either because of investors withdrawing money or because smaller funds wouldn’t be able to maintain operations with the bulk of income coming from a percent taken from total returns. Others saw the pace of innovation in techniques increasing as hedge funds become more visible and institutionalized.

Kelsey Biggers of K2 Advisors, a fund of hedge funds, says he made the trip to New Haven because, “It’s an enjoyable way to step back and look at the industry in almost a visionary way.” Biggers sees time with the students as well spent and noted that “This industry is going to be recast and this is the generation that will do it.”

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