The MFin is 10 years old and I’m stepping down as director. A few thoughts on the last decade.
Nearly 11 years ago, I was asked to create a new post-experience master of finance degree for the University of Cambridge Judge Business School. It was an interesting challenge, with little guidance other than complying with the University’s academic rules. It was a bit like setting up a new business: define the product, find a market for that product, decide how to deliver it, create a marketing plan and hope that people apply. I shamelessly copied the things that I thought worked well on the Cambridge MBA, consulted academic colleagues, friends and former clients and colleagues in the finance industry (with tremendous help from Chris Jones, who teaches an MFin elective) and like any entrepreneur resolved to try some things out on little more than a hunch.
The most important message that came back from practitioners was to include some non-finance teaching. They were all a bit fed up with employing technically bright graduates in finance who lacked any other knowledge about the world or about how to get on with other people. I was already intending to add something along these lines and it led to the inclusion in the MFin of a shorter version of the MBA Management Practice series, plus a stream of lectures by non-finance academics, where I asked them to teach what they thought finance students should know about strategy, organisational behaviour, entrepreneurship and so on.
The other key ingredient, in my view, was to have practitioners teaching or at least presenting to students all through the year. Thus was born the City Speaker Series, loosely based on the MBA leadership seminars, where a speaker would talk for an hour or so then would go with 10 or 12 students to have dinner in a small, usually wood-panelled and candlelit room in a college. That remains one of the highlights of the course, I think, as it provides a wonderful opportunity to get to know the speakers and hear what they really think about the business, their careers and life in general. I have asked a lot of people to be speakers over the years, initially rather shamelessly relying on old finance contacts and FOS (friends of Simon). I have never, ever been turned down by a prospective speaker.
The first class was 25 students. the 11th year is just about to start with 83. But we still have very little information about the MFin “market”, unlike the MBA industry which has a lot of data from GMAT applications. The specialised post-experience finance master’s market remains relatively unknown, despite our (and LBS’s) best efforts to promote the idea and its benefits. I have spent many meetings in banks from London to Istanbul to Singapore explaining to initially puzzled recruiters what a post-experience course is. They then look at the student profile book, see the wonderful combination of academic success and job experience and all then say “Ah, yes I see, what a good idea!” Luckily, or rather owing to the quality of the students and the hard work of our careers team (especially Marwa Hammam), the job record of graduating MFins has been excellent, always among the best in class.
A lot has changed in the last decade. The first class sat down in Lecture Theatre 2 just two weeks after the Lehman bankruptcy. It was a scary time for anybody in finance and for the wider economy. It wasn’t until early 2009 that it became reasonably clear that the whole system would survive, thanks to bold action by the Fed and by the British government.
But not enough has changed since then. Like most financial economists I believe the banks should be far less leveraged (they should have more equity capital to withstand the losses they will inevitably make, without needing help from the government). Regulatory equity requirements are far higher than before the crisis but they were absurdly low then and are still too low now. A lot of the new regulation is hopelessly complex and it would be better to have more financially robust banks that could then be left more free to do what they want (in the wholesale markets – retail customers need to be protected from the tendency to mis-sell that seems endemic in this industry).
I’m not sure there has been much evolution in the ideas of finance. The great majority of finance theory is applied microeconomics and has not changed much in ten years. Most teachers are a little more sceptical about the efficiency of markets than they were before but the basic idea remains, I think correctly, that it is wise to assume that you cannot easily beat the market. But the related idea that the market price is always right, a different aspect of the efficient markets hypothesis, has taken a beating. Unfortunately, I think some people’s high hopes for the impact of behavioural finance have not been met. I think behavioural economics is essential to learn about but it doesn’t (yet?) amount to a competing theory, rather it illuminates important aspects of human behaviour. Perhaps the explosion in neuroscience research will provide a profound new insight into the key question of finance, how do people behave in an uncertain world?
The more important area (and for me the most interesting) is in the interaction of finance theory with macroeconomics. Before the crisis mainstream macro largely ignored the financial system, believing that money and markets are largely irrelevant to the “real” economy. Central banks were (and largely still are) full of macroeconomists with very little knowledge of the financial system or markets. It takes a financial crisis to remind people of how finance can be the tail that wags the macroeconomic dog – in particular debt matters enormously, as we learned in the great Japanese bubble and crash, and should have been concerned about before the US crisis. There is now a lot of academic work that incorporates financial “frictions” and debt into otherwise standard optimising macro models. I hope it’s enough but I’m not sure there has been enough of a revolution to provide the ideas needed to prepare for the next crisis, which will inevitably arrive at some point, and in a different form from the last one.
I have often been asked what I plan to do next. I’m not leaving Cambridge Judge Business School, I’m just shifting the balance of how I spend my time. Most academics do a combination of research, teaching and administration (broadly defined). I’m reducing the admin to free up more research time, my teaching will carry on as before (including supervising undergraduate economics for St Catharine’s College, where I’m a Fellow). Perhaps I’ll write another book. I’ve had some very interesting conversations with colleagues in the Engineering Department about smart infrastructure. My question about these technological developments is always, how will it be financed? And that opens up some research questions. This month I will spend two weeks as a guest of the Central University of Finance and Economics International Institute of Green Finance in Beijing, learning about green finance with Chinese characteristics. I will also visit the Asian Infrastructure Investment Bank. I hope some research ideas might emerge from those meetings too. We shall see.
I leave the MFin in excellent hands. I’m enormously grateful to the team who have actually made the MFin happen over the years, both academic and non-academic colleagues. Above all I want to thank the first administrative head of the MFin Sarah Carter, and her successor as Executive Director Marwa Hammam, herself an MFin alumna. They are both responsible for the tremendous growth and success of the programme. The new Director, as of 1 September 2018, is my colleague Dr. Pedro Saffi, who is that rare thing, an excellent researcher, outstanding teacher and all round nice guy. I’m confident he will apply a new, critical look at the MFin and make appropriate changes.
Lastly I want to thank the students, about 440 in total over 10 years, who have been a pleasure (mostly) to teach, learn from and get to know. I’m often asked what I expect or want from students and I reply that there is no single way to success, it’s for each individual to choose. I’m delighted to see that so many former students have gone into non-academic roles, others have joined the not-for-profit and public sectors, still others have set up their own businesses. I hope only that they do whatever they do honourably and to a high standard.
I have lost track of the number of times students have told me the MFin was the best year of their lives. I hope that there are even better years to come. But it’s not a bad summing up of the MFin experience.