LOS ANGELES — Municipal bonds — and other fixed-income asset classes, even Treasuries — have traditionally received short shrift in college finance courses.
Recognizing that it creates a chasm in the knowledge base of future financial workers, and has the side effect of making students unaware of the world of municipal bond finance as a career path, municipal bond professionals like Marcia Clark are working to change that.
"The vast majority of business schools pay no attention to the bond market, let alone inculcating students with knowledge of its functioning,” said Anthony Sabino, a St. John’s University business and law professor and a Mineola, N.Y., white-collar defense attorney.
“You can overdose on all the courses of corporate finance with tunnel vision on equities, but bonds, most especially governmental, [federal treasuries], and municipal are ignored,” Sabino said. “Indeed, there is barely a whisper as to muni bonds themselves, let alone the intricacies of how they are created, the politics behind them, and so forth."
Clark is tackling the issue on two fronts: as the head of the Fixed Income Academy in Orange County, Calif. and as a professor at California State University, Fullerton where she runs a graduate-level public finance program.
Clark was named head of the Fixed Income Academy in July when founder Susan Munson stepped down from the role.
"Historically, there wasn’t market access to bonds, so professors doing PhD dissertations didn’t have access to market data; so they couldn’t explore them as part of their own journeys,” Clark said.
“They aren’t comfortable talking about them,” Clark said. “Even in an investment lecture course, they may spend one class talking about bonds, if at all.”
You can’t delve into bonds without realizing quickly there are vast nuances, so the average lecturer, seeing how hard that is, goes the other way, she said.
The programs at Fullerton work to insure that students understand the benefits of understanding an array of asset classes even if that subject might not be their first choice of investment or course of study, Clark said.
She adds that Cal-State Fullerton has added more emphasis on fixed income since she began there after working for 27 years at PIMCO, which offers clients an array of fixed-income options.
“Young people in general don’t understand finance,” Clark said.
Clark also works with Cal State Fullerton Philanthropic Foundation, which helps students gain knowledge about the world of finance.
The Foundation funds the Applied Security Analysis program, which enables teams of finance students to manage a stock and bond investment portfolio. Proceeds from the investment funds help support student initiatives at the college such as peer tutoring and career services.
More students have a grasp of the stock market, because it is covered so extensively by media outlets, but young people often don’t understand how the market influences the balance between stocks and bonds, or risk management, Clark said.
“We get them in a room and help them understand the linkage between various asset classes,” she said.
Clark isn’t the only one trying to bridge the gap.
David Fiorenza, a finance professor at Villanova University School of Business and a former chief financial officer at Radnor Township, Pa., said he changed the title of his Public Finance course to Public Sector Economics. The course is an elective for economics, finance and real estate majors.
“Bonds are rarely taught in schools, and if they are, it is on the equity side,” Fiorenza said.
Fiorenza said he “emphasizes the municipal bond arena” in his Public Sector Economics course.
“Most professors do not have the experience or research in the municipal arena at the lower levels of government, just the federal and maybe some state levels,” Fiorenza said. “Their understanding is based on our national debt, but they do not have the knowledge of the entire debt process for a municipality from the bond rating to bond counsel to the fee structure, and even how the debt impacts the budgetary process.”
In addition to not providing future public finance professionals with the nuts-and-bolts knowledge needed to work effectively in the industry be it as bankers, investment advisor or issuers, the gap can also result in a recruitment issue in an era when public finance is seeing Baby Boomers head for the exits.
At the Fixed Income Academy, Clark said, part of the advisory board’s mission is to spread awareness about bonds as an asset class, in addition to teaching about the intricacies of the bond world.
“When Susan Munson started the Fixed Income Academy, she realized her clients didn’t have strong foundations on what risk and instruments were out there,” Clark said.
When Munson was building out the platform, she needed someone with more of an academic background and everyone she spoke with recommended Clark, Munson told the Bond Buyer in July when she handed over day-to-day operations to Clark to take on a more advisory role.
Though the opacity of the municipal bond world began to change in 2011 with the advent of such sites as the Municipal Securities Rulemaking Board's EMMA website, Danny Jasper, the debt manager for Los Angeles County Metropolitan Transportation Authority, said his experience mirrors what others have said.
“My experience is that most B-schools' undergraduate programs do not focus a lot of attention if any at all on public finance or the industry in general,” said Jasper, who earned his MBA in 2011, shortly after the EMMA website was launched.
But as Clark said, even with more data available, municipal bonds, with their variety in both size of issues and types of issuers, remain complex and dense.
“Public finance is not pushed like investment banking for equities, M&A etc.,” Jasper said. “I think it has to do with the very nature of the instrument we are dealing with. Debt is not something everyone likes to talk about, let alone fully understands.”
Most business programs focus on the stock market, corporate finance and accounting or some combination of the three; and most textbooks do not deal with municipal bonds and what specifically goes on in the industry, he said.
“If you were to do a search on Amazon for municipal bond books there should be something of around 693 results that are linked to these words,” Jasper said. “Search stock market and the number jumps to 41,000. The work that municipal bonds support is extremely interesting. If it was taught in schools more, I think it would develop the industry to be on par with equities and other finance related fields.”
Jasper’s entry into public finance came through contact with a person he knew who was in charge of human resources for Fieldman, Rolapp & Associates, a California financial advisory firm, where he first worked in public finance.
“After meeting with her, she introduced me to the head of the firm and from there on, I was working in public finance,” said Jasper, whose background is in finance and accounting with a concentration in investments.
He came into public finance with a strong grasp of numbers, but the firm understood that he would need training in the intricacies of the muni bond world, “because of the very specific nature of the industry,” Jasper said.
His mentors at Fieldman, Rolapp – Anna Sarabian, Darryl Street and Dan Wiles – provided that foundation.
“After working for Fieldman for a number of years, there was an opportunity at Metro that looked interesting and with my newly acquired skill set, I thought it would be a great opportunity to go after,” Jasper said. “Coming on board at Metro took approximately seven to nine months from start to finish. Working at Metro has been and continues to be a great ride.”
Clark hesitated when asked if she would recommend that students pursue a career in public finance.
“I tell my students that there is a lot to learn, so they should walk through whatever door is open to them,” Clark said.
She explained that her hesitance stems from seeing some people who enter the field become risk averse to the point of not considering innovative finance tools that could save taxpayers money.
“There is an opportunity to do better with public funds – to earn more without taking on much risk,” Clark said. “If you begin a career there, you are walking that narrow road – and you could miss out on opportunities that are out there. We tend to learn what we are exposed to.”