Adjusted GPA on a Pro Forma Basis

Recently, recruiters at top universities and college administrators alike have recognized a growing trend in the student job market, namely the adoption of "adjusted" GPA figures. It appears that students have realized what investment bankers have known for years: if you don't like a number, you can change it.

Say you are an investment banker at a large Wall Street Firm, like Silverman Sachs or Layman Brothers, and you are trying to syndicate Theoretical FCF Corp's bonds. The problem is that Theoretical FCF Corp seems to lack any actual cash flow and will almost certainly never actually pay down any debt. What do you do? Just pro forma their EBITDA to what their cash flow would be if they actually generated cash flow, as you kinda expect they may sometime in the future. And if that doesn't get your bond customers to a number that makes them want to write big tickets, adjust that number for "one-time" expenses like "bad debt", "restructuring charges" or the vague but powerful "fees". This is how you get it done when syndicating debt or selling IPOs.

Now for a student, their GPA is basically the equivalent of a firm's 4 year trailing cash flows. The number itself carries huge weight in job interviews, yet for decades students have reported GPA exactly as it appears on their transcript. While entirely accurate, this is a huge mistake. Job applicants are now realizing that adjusting their GPAs can give a more accurate misrepresentation of their performance and expected future production.

Why should an employer hire an average of you over the last four years, when what they should be interested is a real misrepresentation of what you could be now if not for certain events? Here are some ways students are making themselves look better on paper:

1. Add-Backs for non-recurring GPA deductions, such as getting drunk at a final, or anything that happened freshman year


2. Pro forma GPA for dating someone smart or at least someone who wears glasses in the morning.


3. Projected GPA levels for future years using the same class load. Surely a student would be more efficient in those classes if the student took them again. Thus the student should adjust their GPA to better match their future production.


4. And the most common move, arbitrarily making their GPA a 3.6 - good enough to get by, but not good enough to raise suspicion.

Recommendation: If you are serious about a job in finance, it's important to signal that "you get it" before you even arrive. We heartily endorse the use of adjusted and PF GPAs for this reason. Remember, it's not what you did or will do, but what you can convince people you did or will do.

Pomegranate Capital Thinks Women Can Run Money Better, Is Wrong

Susan Solovay, a woman by trade, has started a fund of funds whose mandate will be to invest only in hedge funds run by women. Solovay is marketing this FoF on the claim that women manage investments better than men. (quotes from Business):

Solovay commissioned extensive academic research into the performance of hedge funds run by women and claims that it showed that women fund managers performed consistently better than those run by men.

Other examples of commissioned "academic research" show that:

• Cigarettes taste great and are healthy
• Lead is perfectly safe for the lining of our water pipes
• Corn based ethanol makes any sense whatsoever for reasons other than padding the pockets of Archer-Daniels-Midland (NYSE: ADM) and making idiots feel better (wrongly) about the environment

More from the article:

She claims that the research showed that male-run hedge funds managers tended to shoot from the hip making big returns one year and poor ones the next.

So what Susan Solovay is saying is that the men she has been with have not had consistently "big enough" returns. In this case size does matter and obviously Solovay has not invested in Long or Short Capital. Along with our investment strategy of "not losing money", we use the tactic of "making returns so big that the next year we can lose as much as we want, whenever we want".

For non-abstract financial advisors and managers, performance problems are understandable and not infrequent. But these problems are not due to male analysts and portfolio managers alone. Women are involved in these funds too. If not where would the coffee come from? Who would do some of the back office functions and the bulk of secretarial work? And who would provide massages to male analysts and male PMs? And how would any large investment manager be able to adequately staff their investor relations department? Women are part of the performance of these funds and it is sexist to abdicate them from responsibility just because they are never put in positions to drive actual investment decisions or because nobody takes them seriously.

Recommendation: Setting aside my qualms about Ms. Solovay's rampant sexism, Pomegranate Capital seems to be a dubious gimmick. As an investor, you have two layers of fees and you have a restricted pool of PM talent.

LoS has witnessed the success of our Satan's Portfolio thesis against opposite minded strategies such as those embodied by PAX Fund and we see Pomegranate Capital as a similar opportunity. Although different in composition, we think a great play would be to go long the all-in return of the Vice Fund and short the all-in return of Pomengranate Capital, effectively creating a "PC spread" of sorts.