Yale Curriculum: Financial Centers

For 30 Yale School of Management students, the trip began in New Haven, and after a westward divergence to New York, headed consistently east: London, Dubai, and finally, Hong Kong. The progression highlighted a changing world, as two long-established financial centers yielded to two emerging financial powers. The 10-day trip was the centerpiece of a new SOM course, “Understanding Global Financial Centers,” led by Jeffrey E. Garten, Juan Trippe Professor in the Practice of International Trade, Finance, and Business.

The course is one of the first of SOM’s “integrated electives,” designed to build upon the integrative way in which skills and concepts are taught in the core curriculum during the first year of the Yale MBA program. Rather than study financial centers from the point-of-view merely of an investment banker or trader, Professor Garten’s course takes a more holistic approach, incorporating a review of each place’s history, culture, politics and regulatory environment. “This is essentially a course about global competition,” Garten said. “Were this 20 years ago, we might have studied the steel industry as the great arena of global competition. What’s interesting about this moment in time is that the new field of global competition is high value added services. Financial services is one aspect of that. As a result, many of the world’s big cities are preoccupied with creating a financial center in order to attract investment, talent, and associated industries.”

The course is broken down into two parts, with the trip coming in the middle. For the first several weeks, Garten — who was an undersecretary of commerce for international trade in the Clinton administration, and who built Lehman Brothers’ Asia investment banking business — presents a history of financial centers, beginning with ancient Persia, moving to Renaissance Venice and Amsterdam in the 1700s, and finally focusing on the rise of New York and London after the Industrial Revolution. Students were presented with a number of questions to consider as they approached each city: How do financial centers grow? How do they attract talent? How do they compete and cooperate with each other? The point, Garten said, is to come to a full understanding of the forces that shape the global economy, something that should be helpful to students regardless of which field they pursue. In the first part of the course, as well, students meet with outside experts from Wall Street on such issues as regulation, securities settlement and clearance systems, and they also are exposed to officials from New York City charged with economic development as it relates to financial services. After the trip, students work on an independent project, analyzing a financial center that they did not visit, such as Singapore, Mumbai, or Sao Paulo.

It was the international perspective of the course that attracted Chris Edell ’08. As a student focused more on strategy and international relations than finance, he admitted to being a little intimidated when he saw that many of the school’s top finance students had also enrolled. “But finance is just one part,” said Edell, who has a fellowship at Harvard’s Kennedy School of Government starting in the fall. “I saw the course as an opportunity to round out my education, and get a better feeling for global markets and how they’re changing. In Hong Kong, we met with Ronnie Chan, who is one of the largest real estate developers in the region. He explained how while it’s true that when the U.S. sneezes, the rest of the world catches a cold, the balance of economic power is shifting. China, as he explained it, is a car driving down the highway at 100 miles per hour, while the U.S. is another car, far ahead; but China is in the rear-view mirror, catching up quickly. It might not be too long before it passes right by.”

As the students made their way around the world, the places they went and people they met reinforced lessons from the classroom. Each financial center is different, but many share elements that can benefit one and disadvantage others. For instance, the United States and England have built their financial regulations in different ways, creating a perception that in New York there are more restrictions to overcome while London is more open and flexible. As new financial centers have sprouted, they’ve had to choose to emulate one model or the other. Hong Kong, being a former British colony, more closely adheres to the English model, as does Dubai, which has experienced explosive growth in the last few decades. "We met with the managing partner of McKinsey’s Middle East operations," Edell said. “They opened the Dubai office less than ten years ago and now it’s one of their most profitable branches.” In each city, as well, students met with top people in Goldman Sachs and KPMG, plus senior officials from local banks and companies.

Vinod Pathrose ’08, who has taken a permanent position in the treasury department of ExxonMobile, said he was impressed by how the further east the students went, the greater the sense of confidence. It’s clear, he said, that the subprime crisis has deeply affected people on Wall Street, and to a lesser extent, those in London. “As you get to Dubai, you can really feel the difference,” he said. “And in Hong Kong it’s all about China, so everyone is optimistic.”

“When we were in New York, the buzzword was liquidity — and this was before Bear Sterns,” said Lee Xu '08, who will be working for an investment management firm in Hong Kong. “And then in Dubai, all anyone is talking about is construction. There’s about $1 trillion (U.S.) construction planned or underway. The scale and magnitude is unbelievable.”

To maximize each stop on the trip, Garten planned meetings with top political, cultural, and business leaders. In London, students met with the city’s assistant director of development, top officials with the stock and metal exchanges, and the co-CEO of Goldman Sachs International, plus economists, historians, and marketing executives. In each city, the scenario was similar, be it the president of CITIC Pacific — a steel, iron ore, and infrastructure conglomerate — in Hong Kong or the CEO of the Dubai private equity and investment management firm Rasmala, who envisions Dubai as a financial capital with reach extending from Africa to India. “The meetings were all really, really high quality,” said Yazad Jal ’08, who will be working for McKinsey. “These were people who were able to articulate the vision for each city and to put the state of global capital into perspective.”

For Edell, the course was one of the highlights of his time at SOM. “It really provided the global perspective that I was looking for in business school,” he said. “Travelling to these different regions of the world really opened my eyes to how the capital markets work, how national economies work, and then, on the micro level, how companies like McKinsey and Goldman Sachs or a manufacturing company work within these different regions and a world becoming more globalized. So both the macro and the micro picture, it really was kind of a great way to tie all the loose strings of my business education together.”