Research

My research interest is connected to my vocational experience. Before becoming an academic, I worked at the Stanford Management Company (Stanford University’s endowment). Before working at Stanford, I worked at Standard & Poor’s (S&P) in the Corporate Valuation and Consulting group (now part of Duff & Phelps).

Private Equity
As part of my job at Stanford, I evaluated asset allocation and portfolio strategies across the university endowment. It led to my dissertation on Private Equity’s Diversification Illusion. The motivation for the work is best identified by watching Bob Maynard, the Chief Investment Officer of Idaho’s Public Employee Retirement System, openly describe the accounting incentives for investing in private equity in a CalPERs Public meeting (Maynard, 2015, 1h:28m:50s).

We did know that our actuaries and accountants would accept the smoothing that the accounting would do. It may be phony happiness, but we just want to think we are happy and they actually do have consequences for actual contribution rates we are going to be able to put in place even if it just gave public market returns, we’d be in favor of it because it has some smoothing effects on both reported and actual risks, as seen that way we’re happy if it gives public market returns, anything extra, because of its effect having some smoothing of the risk as seen by the accountants and actuaries. …

With candor, Maynard admits they would invest in private equity, even if it only matched public equity returns in order to benefit from the “phony happiness” that smoothed accounting NAVs provide. A CalPERS board member followed up with Bob Maynard’s assertion, asking to expand on his motivation for investing in private equity even if the returns were the same (Maynard, 2015, 1h:46m:25s).

Again the actuaries and accountants recognize the smoothing benets of the appraisal process that are there. Now they have been diminished because of GASB over the last number of years, but they are still there. As a result, it does soften the annual volatility of the fund, and it is that annual volatility at the extremes drives our contribution rates, which are actual dollars in and out our teachers and public employee’s pockets. Over the last number of years, you may noticed that we just came through what was arguably one of the worst decades ever, in terms of volatility. Everybody says, It is all so volatile’ over the last 20 years, instead of being the expected 12 or 13% annualized volatility, our experienced volatility has acutely been more in the 9 to 10% range|and that is almost solely due to the private assets that have been recognized by the accountants and actuaries as legitimate for purposes of reporting. And I’ll yell and scream about the accountants and actuaries, but when they nally lay down the law and say, These are the rules you need to follow. Here are what your fees are. Here are what your returns are.’ You kind of solute. So
as a result, private equity has outside than [just] return benets and those are good enough so that even with public market returns|I’ll be happy. I may just be thinking I’m happy like I said before, that is good enough for me. [adjusted for grammar]

Intangible Assets and Innovation
Before working at Stanford, I worked at Standard & Poor’s (S&P) in the Corporate Valuation and Consulting group (now part of Duff & Phelps). As part of this experince, I valued intellectual property, and intangible assets post public company acquisition. It led to two papers, one that evaluates current measures of innovation, titled Innovation Worth Buying: The Fair-Value of Innovation Benchmarks and Proxies. The other article examines how executive training in valuation impacts reporting–Top Executive Background and Financial Reporting Choice. My research on executive backgrounds and private equity let to and interest in governance research.

Corporate Governance
Projects relating to corporate governance include: Does the Market Value Professional Directors? and Corporate Culture and Financial Reporting Risk: Looking Through the Glassdoor.