NORTHWESTERN UNIVERSITY
KELLOGG SCHOOL OF MANAGEMENT
WALL STREET, HEDGE FUNDS AND PRIVATE EQUITY (LBO) FUNDS
Evening Course at Jacobs Center
Spring Quarter 2006
FINC-931
Professor: David Stowell
E-mail: d-stowell@kellogg.northwestern.edu
Telephone: 847 441-0649 (home); 847-467-0291 (office)
Office: # 447 Jacobs Center
COURSE DESCRIPTION
This course focuses on the activities of private equity (LBO) funds and hedge funds, their
influence on corporate decision-making and corporate measures that are taken to counter
threats and exploit opportunities represented by these investors. Competition and
cooperation between investment banks, LBO funds and hedge funds will also be
analyzed. In addition, the course reviews innovative equity, debt and convertible
transactions, with a particular focus on hedge fund investing and hedging strategies in
relation to these securities. Three senior guest lecturers will represent the perspectives of
investment banks, hedge funds and LBO funds.
REQUIRED TEXT
No text. There will be a case packet containing required reading material and additional
material will be posted on Blackboard.
GRADING
1. Class participation (20% weighting)
Classroom comments and questions should demonstrate knowledge of the topic
being discussed and should facilitate learning for the entire class. Preparation for
and participation in case discussions is particularly important.
2. Group presentation to the class on weekly developments in the private equity and
hedge fund markets (20% weighting)
3. Group blackboard posting on a key hedge fund strategy (20% weighting)
4. Mid-term paper focusing on Refco or Albertsons (20% weighting)
5. Final paper focusing on Nalco (20% weighting)
SUMMARY COURSE OUTLINE
Class #1
March 27
Overview of Hedge Funds
Topics:
(A) Organizational Structure and Objectives
(B) Hedge Fund Activities
Readings:
Hedge Funds Overview-Powerpoint Slides
Hedge Fund Investment Strategies-Powerpoint Slides
Market Masters-Bloomberg
Don’t Fence in Hedge Funds-Business Week
Class #2
April 3
Overview of Private Equity (LBO) Funds
Topic:
Private Equity Activities
Readings:
Private Equity (LBO) Funds-Powerpoint Slides
The Great Global Buyout Bubble-The New York Times
KKR: The Sequel-Fortune
Class #3
Hedge Funds, LBO Funds and Investment Banks: Competition,
Cooperation and Impact on Corporations
April 10
Topics:
(A) Hedge Funds and LBO Funds: impact on corporations and the
securities industry
(B) Sears and Kmart Merger: hedge fund ESL’s role
Readings:
Hedge Funds, LBO Funds and Investment Banks: Competition,
Cooperation and Impact on Corporations-Powerpoint Slides
“Kmart, Sears and ESL: How a Hedge Fund Became one of the World’s
Largest Retailers”-Case Study
The New Raiders-Business Week
Class #4
April 17
Hedge Funds, LBO Funds and Investment Banks: Corporate Opportunities
and Threats
Group blackboard posting on a key hedge fund strategy due
Topics:
(A) Pershing Square’s relationship with McDonald’s
(B) Corporate strategies to deal with investment banks, hedge funds and
LBO funds
Readings:
“Hamburger Hedging: Pershing Square’s Investment in McDonald’s”Case Study
Behind the Rot at Refco-Bloomberg
Cerberus Among Buyers of Albertsons-Hedgeworld
Class #5
April 24
LBO Funds: Key Role in the M&A Market
Topics:
(A) Overview of recent corporate M&A transactions with LBO Funds
(B) Guest lecturer from JP Morgan: David Adler, Head of Financial
Sponsor M&A Group
Readings:
JP Morgan presentation (to be provided in class)
After TDC, It’s a New Playbook-WSJ
LBOs Achieve Wider Acceptance as Stable Firms Become Targets-WSJ
Class #6
May 1
Alternative Investments: Private Equity, Real Assets and Absolute Return
Mid-term paper on Refco or Albertson Due
Topics:
(A) Guest lecturer from Goldman Sachs: Rich Friedman, Head of
Merchant Banking Division and Principal Investments Area
(B) Analysis of alternative investments industry
Readings:
Goldman Sachs presentation (to be provided in class)
The Yale Endowment
Class #7
May 8
Private Equity (LBO Fund) Activities Today
Topics:
(A) Guest lecturer from Code Hennessy & Simmons: Tom Formolo,
Partner and Head of Investments Committee
(B) LBO M&A transaction
Readings:
Code Hennessy & Simmons presentation (to be provided in class)
Private Equity: Recent Trends and Industry Outlook- Madison Dearborn
Partners
JP Morgan M&A- Case Study
Class #8
May 12
Investment Bank Services to LBO Funds and Hedge Funds
Topics:
(A) Prime Brokerage for Hedge Funds
(B) Convertible, High Yield, Bridge Loan and Equity Underwriting for
LBO Funds
(C)M&A for LBO Funds and Hedge Funds
Readings:
Shark on Shark-IDD
Riding the Hedge Fund Boom-Bloomberg
A New Evolutionary Path-Risk
Let’s Make a Deal-Fortune
Class #9
May 15
Innovation on Wall Street
Topics:
(A) Convertible financings
(B) Derivative transactions
(C) Share repurchase strategies
Readings:
Convertibles-Powerpoint Slides
Note on Convertible Arbitrage
Equity Derivative Strategies for Corporations-Powerpoint Slides
Cephalon, Inc.-Case Study
Class #10
May 22
Global Financial Innovation and Review
Final paper on Nalco due
Topics:
(A) New product development and fostering creativity
(B) Course review
Readings:
Nikkei Put Warrants
CLASSROOM POLICY
Students should demonstrate respect for the professor and fellow students during the class
period by refraining from distracting behavior such as disruptive eating, using laptops to
surf the Web or check e-mail or holding side conversations.
RECOMMENDED BOOKS TO FURTHER DEVELOP UNDERSTANDING OF
TOPICS COVERED IN THIS COURSE (optional reading)
Barbarians At the Gate -- Burrough and Heyler
When Genius Failed -- Roger Lowenstein
Goldman Sachs: Culture of Success -- Endlich
Tearing Down the Walls -- Langley