By Rebecca Knight, Financial Times, May 24 2010
In Latin America, financial research on public companies can be difficult to find. Not only are many of the financial markets underdeveloped and thinly traded, there is a dearth of analysts in the region because most big investment banks do not bother to cover small, emerging market companies.
But business schools there have set out to change this. A dozen schools have signed on to a programme in conjunction with Tulane's Freeman School of Business where MBAs research, write and publish investment reports on small- and medium-sized enterprises in the region. Launched in 2003 at schools in Mexico, Colombia and Venezuela, the programme has expanded to schools in seven countries, with most growth occurring in the past two years.
John Trapani, executive director of Tulane's Goldring Institute of International Business, which sponsors the programme, says that it serves two purposes: to improve access of Latin American corporations to capital markets, and to give Latin American MBAs an edge in the job market by giving them marketable skills.
"We're hearing that many companies there are seeking out students that have had this kind of training," says Mr Trapani. "We have helped establish a career path for professional investment research in Latin America where none existed before."
The programme is based on Tulane's Burkenroad Reports programme, named after William Burkenroad, an alumnus and benefactor of the school. The programme began in 1993 when the New Orleans-based school won a state grant to buy Bloomberg terminals for student use. Today, nearly 200 students each year enrol in the Burkenroad's finance course and produce professional-quality research reports on 40 publicly traded companies in the southern US.
The programme shines a light on small businesses often overlooked by Wall Street and gives MBA students real-world experiences as equity analysts, says Mr Trapani. "It's valuable for the students who want to pursue careers as professional research analysts," he says, adding that the student-written reports are followed by members of the professional community and are integral to some money managers' stock-picking strategies.
In 2000, the Inter-American Development Bank, the Washington, DC-based group that supports economic development in Latin America and the Caribbean, awarded Freeman a $1.5m grant to implement the programme in Latin American countries.
Burkenroad Latin America is modelled on the US programme. Professors trained at Tulane teach the courses and student teams are assigned to produce individual investment reports on local companies. The teams evaluate companies based on an examination of past earnings, site visits and an analysis of recent economic data on the industry. The reports are published on the internet and often amount to the only financial coverage these companies receive. (Twenty companies in the region are now covered, including Minera Autlán, the Mexican steel company and accessories maker, and Banco de Guayaquil, the Ecuadorian bank).
"It is a [beneficial] programme for the companies because they can get financial reports without paying for them," says Eduardo Court at Universidad Catolica del Peru, one of the participating schools. "These reports contain many useful aspects like company valuation, industry analysis and an interview with the companies' CEO or CFO about the company's real financial and market situation."
The programme has also been a boon to the students' careers. "The students see this activity as an added value," says Mariano Merlo of the University of Belgrano, another participating school. "One of our students was accepted for a position as an equity analyst and . . . he had to pass a valuation exam, where he was able to apply what he learnt."
But there have been obstacles to implementing the programme. In some Latin American countries, such as Venezuela, many industries have been nationalised so there are few stocks to choose from. Some Latin American companies do not want their financial information disclosed for competitive reasons.
Slowly companies have been won over, says Eduardo Pablo, co-ordinator of the programme. "Little by little we are creating a culture of releasing information and they're more willing to talk. They are changing their ways and starting to see the stock exchange as a way to fund growth."