Author: rlake

Focusing solely on financial metrics and valuation models can be alluring when evaluating potential investments. However, assessing the management team is crucial. 

Understanding the Business when Evaluating Management

To provide some fundamental context, investors should work to understand the company’s underlying business model and competitive environment using the Business aspect of the BMPB framework. For example, what product or service does the firm provide, i.e., how do they generate revenue? Who are the major competitors? How large is the total addressable market? 

This grounding in the fundamentals of the business is a critical context for evaluating the aptitude of management.

Evaluating the Management Team

With a basic understanding of the business, the Management element focuses on the human capital leading the company. Some essential questions to answer:

• What is the capital allocation track record of the executive team? Have they demonstrated prior success at this company or in this industry concerning the company’s growth, from either organic growth or mergers and acquisitions? What’s the company’s dividend policy, share buyback program, and debt management on the balance sheet, and do these activities align with shareholders? 
• Are management incentives adequately aligned with shareholders? Or does executive compensation appear skewed too heavily toward the short term?
• Does the management team exhibit integrity, transparency, and accountability with shareholders? Or do they seem only to pay lip service to investors?
• Is there high turnover or departures of critical executives that raise a red flag? Does talent thrive and stick around at the company?
• Does the board include respected leaders who can advise and challenge management as needed?

Why Management Matters

Investors who overlook management diligence and focus narrowly on short-term financials or valuation multiples often regret that decision later. Some reasons that evaluating the management team matters so much:

• Executives make crucial capital allocation decisions that impact long-term business value. Suboptimal choices can destroy shareholder wealth.
• Management sets the corporate culture and morale as vital intangible assets. Talent retention needs better leadership.
• Execs are closest to the business operations and competitive landscape. Investors want managers to think strategically for the future.
• Management guides the investor relations tone and transparency. Secure executives engage openly with shareholders.

Takeaway

Analyzing business strategy is only complete with a robust examination of the management team executing that strategy. The management team’s capital allocation track record, incentives, and the company culture they set provide valuable insights. The GW Investment Institute BMPB framework emphasizes evaluating the management team.

We had a beautiful snowstorm the week before welcoming students back to class. 

I really enjoy the start of each semester, particularly meeting the students in each of the GW Investment Institute classes and learning more about why they are taking the class and what they hope to learn. 

This semester the GWII is teaching the following classes:

Phillips Student Investment Fund: Undergraduate students serve as analysts and manage approximately $3 million of the university endowment. The students focus on a particular sector (Consumer Discretionary and Staples, Energy and Utilities, Financial Services, Healthcare, Industrials and Materials, Technology and Telecom) and use fundamental analysis and the GWII Investment Framework to ultimately pitch to sell a current holding to fund the purchase of something else that the student believes will be a better long-term investment. This fund was started in 2008 and named in honor of former GWSB Dean Susan Phillips. This semester, the class is being taught by Professor Matthew Miller, an Adjunct Professor of Finance and Senior Financial Associate at the Ross Group or RBC Wealth Management. 

Quant Student Investment Fund: The finance industry has experienced large changes due to technological innovations, for example the increase in quantitative strategies. This course, for undergraduate and graduate students, provides an overview of some common quant investing strategies and focuses on data-driven models, which is different from the fundamental analysis and subjective assessments which are the focus of the other GWII student funds. Students will learn how to analyze time-series data and work in groups to find and analyze real data and build and test a predictive model. This is the newest student fund of the GWII, established in 2021. The class is taught by Rodney Lake, and our portfolio advisor is Aron Kershner, Senior Portfolio Manager in the Customized Beta Strategies (CBS) business within Goldman Sachs Asset Management Quantitative Investment Strategies.

Venture Capital Class: This course exposes undergraduate and graduate students to the venture capital investment industry, primarily through guest lectures and group assignments. The course will be taught by Rodney Lake with Bill Collier, Director of Investment Business Development with TEDCO. 

Additionally, I will be teaching a class on Business Career Strategy. 

The next Live with Rodney Lake will take place online on Thursday, January 20 at 6:30 pm. This show is an opportunity for me to discuss market news while connecting with students, alumni, and other friends of the Institute. I hope that you can join me.

Best regards, 
Rodney E. Lake
Director, GW Investment Institute

CyrusOne (NASDAQ:CONE) announced on November 15, 2021 that it is being bought by KKR & Co and Global Infrastructure Partners LLC for $15 billion and shareholders will receive $90.50 in cash per share. The deal is expected to close sometime in the second quarter of 2022. This price is a 25% increase from the closing price on September 27, 2021, after which there was public speculation about a possible sale. 

CyrusOne is a Real Estate Investment Trust (REIT) based in Dallas that designs, constructs, and operates data centers. This is a small position in the  portfolio (just under 1%) as it was approved at the end of the Spring 2021 semester when a student analyst was able to convince a majority of her peers with her pitch that we sell 50% of Store Capital Corp (NYSE: STOR), a single tenant net-lease REIT to buy CyrusOne. 

The student analyst argued that the portfolio should increase our investments in tech through data center REITs and in particular invest in CONE, which provides mission-critical data center facilities that protect and ensure the continued operation of information technology (“IT”) infrastructure for approximately 1,000 customers. The analyst felt that the company was undervalued and projected large growth (noting that it would grow 20% by 2022 just from the completion of projects). 

I will continue to share updates on companies in our portfolios that might be of interest to you. 

Rodney E. Lake
Director, GW Investment Institute 

An important part of our program are the stock pitch days at the end of each semester. For this culminating project, each student uses the collective knowledge that they have gained throughout the semester to develop an investment pitch. Our student analysts propose to sell a current holding in the portfolio which will fund the purchase of a different company that the student believes is a better long-term investment. After the student gives their pitch, their peers, i.e., the other students in class vote on their recommendation. They must convince at least eighty percent of their peers for the recommendation to be accepted for the portfolio. 

“The Phillips Student Investment Fund is a great class that brings together all the learning from previous finance classes and applies it to the real world. Students become portfolio analysts and need to treat it like a real job, having the responsibility of managing real funds. 

This class was so useful during my summer internship at Goldman Sachs where they asked that I put together a stock pitch. I had a framework to follow in analyzing a business, its management, financial statements, and estimate a valuation.” 

– Giulia Genovese, B.S. in Finance and Economics, May 2020. 

A key component of the GW Investment Institute is hosting industry guest lecturers so that our students hear different market perspectives and connect with individuals in various aspects of the finance and business world.

Students often tell us that the guest lectures are one of their favorite aspects of the class and some of our students have even secured internships from a guest lecturer.

The last couple of weeks we have had a great line-up of guest lecturers, below are a few examples:

GW Phillips & Ramsey Student Investment Funds – Guest Lecturers

Mark Anfang, BBA ’02, Portfolio Manager at Scopus Asset Management

Prior to Mr. Anfang’s guest lecture he had students analyze a company he had already reviewed. This included examining the company’s business model, financial statements, and management. The students then each developed a valuation model and ultimately whether they would be interested in buying the company. In class, the students and Mr. Anfang discussed their findings and Mr. Anfang shared with students how he constructs valuation models and answered their questions.

Ave Tucker, BBA ’77, CEO and Cofounder of TM Financial Forensics, LLC; GW Board of Trustees member

The students in both our Phillips and Ramsey Student Investment Funds were fortunate to hear from Mr. Tucker about forensic accounting, financial statement frauds, and red flags when analyzing financial statements. He shared with our students key aspects of some important corporate litigation cases that he worked on and showed them the practical applications of what they are learning in class.

GW Real Estate Student Investment Fund – Guest Lecturers

Steve Yalof, BBA ’85, President and Chief Executive Officer, Tanger Factory Outlet Centers (SKT)

This was a unique opportunity for students to speak with the CEO of a publicly traded company. Prior to class, the students listened to Tanger’s most recent earnings call and reviewed the quarterly materials. As student analysts, they came prepared with questions for the CEO about the company’s earnings and future opportunities. Many students had personal experience shopping at a Tanger Outlet, and we learned that Mr. Yalof was familiar with the shopping centers in each student’s hometown.

Keven Lindemann, Senior Director of Global Real Estate at S&P Global Market Intelligence

Mr. Lindemann provided an overview of REITs, spoke about the specifics of different sectors, shared an analysis of market cycles, and reviewed current market conditions. We also discussed how ESG impacts real estate investing. Mr. Lindemann was generous with his time in answering students’ questions as they work to determine how to make good decisions for the GW Real Estate Student Investment Fund.

We hope everyone has a nice Thanksgiving. We are grateful for the hard work that students have put in throughout the semester, and everyone who takes the time to speak to one of our classes, mentor a student, and/or donate to GWII (give now).

Thank you all. The success of our program depends on everyone’s help.

Rodney E. Lake
Director, GW Investment Institute

Full report: GW Investment Institute Quarterly Report September 2021

Third quarter of 2021 recorded mixed returns for equities and increased market volatility towards the end of the quarter tied to a range of economic and political concerns. For the GW Investment Institute Student Investment Funds (GWII SIFs), returns were relatively flat at -0.8% vs. 0.06% for the S&P 500 Index during the quarter. Year to date, the GWII SIFs trailed the S&P 500 Index returning 11.7% vs. 15.9% for the S&P 500 Index. GWII SIFs continue to demonstrate resilience through the challenges of the pandemic and related economic impacts reflecting the hard work, diligence, and dedication of our students, faculty, staff, and alumni.

The GWII SIF has given students like me the unique opportunity to manage and grow a real investment portfolio. I served as an analyst/portfolio manager (along with other students enrolled in class) in two finance classes associated with SIFs – GW Real Estate SIF during fall of 2019 and GW Philips SIF during spring 2021. Although the circumstances of the past year limited the typical interactions that have made the SIFs so great, we in turn gained valuable experience from navigating the markets amid the many uncertainties during this challenging period. Much like the real-world, the class’s fast pace and at times demanding environment have undoubtedly expanded my skills and knowledge in the span of just a semester. I look forward to utilizing skills gained in GWII classes and GWSB post-graduation as investment banking analyst for a DC based investment firm.

Commentary by Hien (Julia) Nguyen, Student Research Assistant, GW Investment Institute

It has been an exciting week for the GW Investment Institute (GWII), and for me personally, to welcome students back on campus for in-person classes.

GWII is offering four classes in the department of finance this semester: Ramsey Student Investment Fund for graduate students, Real Estate Student Investment Fund, and two sections of the Phillips Student Investment Fund for undergraduate students. I teach three of the classes; and one section of Phillips is taught by Matthew Miller, an adjunct professor who is also a Senior Financial Associate with the Ross Group at RBC Wealth Management. Combined, 51 students will be managing almost $8 million of the George Washington University endowment.

It was great to see the enthusiasm in the first classes. Students were asking good questions to better understand the current portfolio and the GWII Investment Framework to analyze companies. I look forward to this semester: helping the students become intelligent investors, bringing interesting guest speakers to campus, and culminating with the students’ investment ideas.

Best regards,

Rodney E. Lake

Full report: GW Investment Institute Quarterly Report June 2021

For the quarter ending June 30, 2021, the GW Investment Institute Student Investment Funds (GWII SIFs) returned 10.0% vs. 8.6% for the S&P 500 Index and for the trailing one year the GWII SIF returned 39.5% vs. 40.8% for the S&P 500 Index. The GWII SIFs continue to perform well and reflect the hard work, diligence, and dedication of our students, faculty, and staff, thank you.

Congratulations to our Ramsey Scholars and our GWII Leadership Award recipients, these awards are funded from the payout of the GW Ramsey Student Investment Fund.
The 2021 GW Ramsey Scholars: Jakub Behun, Olivia Eckstein, David Lilla, Vikram Vignesh Nallakrishnan, Zihan Ni, Taylor Pischke, Victoria Schmit, Jeff Siaw, Jiajun Zhong, Lexington Zografakis.
The 2021 Leadership Award Recipients: Ethan Baron, Aizhan Daniyarkyzy, Samantha Horowitz, Oya Houalla, Hannah Jackman, Amelia Larkin,
Jodie Lian, Yejide Olutosin, Sam Rivere, Madison Walenda, Alex Win.

Commentary by Rodney Lake, Director, GW Investment Institute

Full report: GW Investment Institute Quarterly Report March 2021

For the quarter ending March 31, 2021, the GW Investment Institute Student Investment Funds (GWII SIFs) returned 2.3% vs. 6.2% for the
S&P 500 Index and for the trailing one year the GWII SIF returned 56.5% vs. 56.3% for the S&P 500 Index. The GWII SIFs continue to perform
well and reflect the hard work, diligence, and dedication of our students, faculty, and staff, thank you.

Commentary by Rodney Lake, Director, GW Investment Institute