Master Class: A Lender's Viewpoint

Oaktree Capital Principal Sheldon Stone brings practical credit research knowledge to Marshall School MBA's. 

October 13, 2020

The USC Marshall School of Business takes great pride in its educational environment that encourages experiential learning opportunities and participation by industry professionals.

Sheldon Stone, a founding member and principal of Oaktree Capital Management LLC, is one such professional Marshall students enjoy access to.  Oaktree currently has more than $122 billion assets under management (AUM). Stone has managed the firm’s US and global high-yield bond portfolios for three decades, and for the last five years, he has been teaching a course he created for MBA students at Marshall.

“In some ways, it’s the antithesis of how equity investors think. Equity investors are looking for companies that deliver steady earnings growth, while lenders desire a margin for error and certainty that they will get their money back.”—Sheldon Stone, Principal and founding member, Oaktree Capital Management, on teaching a lender's point of view to MBA students at USC Marshall

Stone’s involvement at USC started in early 2000. He was persuaded to join the board of the Center for Investment Studies (CIS) after a few conversations with then-dean Randolph Westerfield and Chair of the Center for Investment Studies Board Larry Tashjian.

The CIS is a USC Marshall pathway to the investment community. CIS board members are all well-known professionals and serve as active advisors for the Student Investment Fund program (SIF), and host many of the program activities, including company site visits, guest lectures and providing professional guidance and input on CIS activities.

“Sheldon has brought a passion, desire to educate and enthusiasm to give back to our industry that is unique and different,” said Tashjian, President and CEO of CAM Capital Advisors.  “His insights and experience in managing high-yield debt brought an expanded focus to our Center, and Sheldon has expanded that focus into his teaching responsibilities over the last five years.  He has been a pleasure to work with and all of us thank him for his willingness to share his time, expertise and network connections to continue to enhance the Center’s strategic goals.”   

  The Professional Viewpoint

After spending some time on campus, Stone noticed there was an opportunity to add instruction in the field of credit research.  He saw many offerings in equity investing but not much in fixed income beyond yield math. He felt strongly that MBA students could benefit from fundamental credit research knowledge. 

“Not everyone is buying equities,” he said. And learning the business from a lender’s side offered a perspective Marshall students would benefit from.

Motivated to offer a class he hadn’t seen before, Stone created the High-Yield Bond Investing-Managing Credit Risk course in 2015. 

“I wanted to be the professor I never had,” he said. “Someone who’s a practical instructor, offering a small seminar-style learning experience where questions are encouraged.”  

CIS Director and Professor of Clinical Finance and Business Economics Suh-Pyng Ku has enjoyed her professional and academic collaboration with Stone.

“It seems like yesterday since we first discussed the idea of offering a specialized high yield debt investing class at Marshall,” said Ku, who is also vice dean for graduate programs at USC Marshall.  “But this fall will be Professor Stone’s fifth year of teaching FBE550.  We are so grateful to Sheldon for creating and teaching an engaging, experiential class for USC Marshall MBA students that will profoundly expand their finance experience.”

MBA students must apply and be selected for this intimate and interactive class.  Throughout the eight-week course, 12 students review the structure of the high-yield bond market and work to develop a practical approach to assessing credit risk while understanding how deals are structured and priced. An emphasis is placed on developing analytic skills for corporate credit research and assessing how the market measures and prices credit risk. 

Kevin Murphy, professor of finance and business economics, and Chair of Marshall’s Finance and Business Economics (FBE) Dept., explained the significance of Stone’s elective course.

“Courses like the High Yield Bond – Managing Credit Risk class are very important to Marshall because they allow second-year MBA students the opportunity to develop strong competencies in specialized areas of finance that align with their career goals.”

Stone’s goal for his students is that they learn how lenders view the world, how credit markets work, and what borrowers care about. 

“In some ways, it’s the antithesis of how equity investors think,” he said. “Equity investors are looking for companies that deliver steady earnings growth, while lenders desire a margin for error and certainty that they will get their money back.”

Alumni of his class suggest that he’s been successful in this regard.

“As students of investing, we were constantly in awe of Professor Stone’s ability to break down and explain complex subject matters,” says Jon Friedman MBA ’17, now a credit research analyst at Janus Henderson Investors U.S.  “We always enjoyed hearing Professor Stone’s stories and lessons learned and how he continues to be passionate about the market, even with his longstanding success.”

Harry Pham MBA ’20 agreed. “Professor Stone’s class has really widened my knowledge and brought many perspectives to me. I am forever grateful for these experiences.”

And USC Marshall is grateful to have the dedication and support from such an accomplished industry professional as Sheldon Stone.