Kellogg World Alumni Magazine Winter 2009

Writing in the eye of the storm

A new textbook by David Stowell offers an up-to-the-minute take on the investment industry

By Chris Serb '09

  David Stowell

David Stowell had no idea what he was in for when he signed up to write an investment banking textbook a few years ago.

But he certainly had the expertise. Stowell, a clinical professor of finance, had recently joined the Kellogg faculty after 20 years in investment banking and four more at a hedge fund. His publisher, the Academic Press imprint of Elsevier, had identified a need for a good textbook that merged academic theory with real-world experience. The book seemed like a win-win for both parties.

Then the worldwide credit crisis hit; two of the world's largest investment banks disappeared; and other large institutions suffered huge losses and struggled to survive. In the midst of this, Stowell realized he would need to rewrite the book, which was about one-third finished.

"It was exciting, but distracting," Stowell says. "I had a unique opportunity to write this book during the biggest financial crisis we'd seen in 75 years."

Writing in real time allowed Stowell not only to explore the industry-related causes and effects of the financial crisis, but to re-conceive the book around the emerging overlap between three different investment industry subsectors. An Introduction to Investment Banks, Hedge Funds, and Private Equity: The New Paradigm was released in February.

The book, which includes 10 case studies based on real-world experiences in the industry, outlines Stowell's view of the post-crisis paradigm. It is a world in which leverage has dropped substantially, risk tolerance is lower, and extremely complex financial instruments have fallen out of favor.

"This means a potentially lower earnings profile, but also less risk, so this is probably a good thing," Stowell says.

But this new paradigm also entails legislative and regulatory proposals on compensation controls, levels of leverage, and trading rules that could affect areas far outside these industry sectors, hindering liquidity in equity markets or eroding shareholder value in buyouts.

"This book gives students a foundation for understanding the impact of additional changes as the industry continues to evolve," Stowell says.

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