Bright ideas: What’s coming next in the world of finance? | Illustration by Ibrahim Rayintakath
From VC and ESG to corporate priorities and crypto — the topics and trends that professors are watching most closely.
In 2023, we sat down with seven leading professors from Stanford Graduate School of Business to talk about the trends reshaping the global economy. Here’s what they’re tracking closely.
Venture Capital Driving the Innovation Economy
Venture capital will continue to be a key driver of technological transformation, funding everything from robotics to CRISPR gene-editing startups. “If we’re really interested in what’s going to happen in 10 or 20 years down the road, venture capital is critical,” said Ilya Strebulaev, the David S. Lobel Professor of Private Equity. Recent downturns in the sector may lead to greater innovation, he noted. “When valuations are lower, this typically brings more innovation later on, because it’s easier to invest.”
The United States’ Looming Debt Dilemma
America’s growing national debt could trigger a financial reckoning, said Matteo Maggiori, the Moghadam Family Professor of Finance. “The edifice of the international monetary system is built on reputation and confidence, and these things tend to evaporate very quickly,” warned Maggiori. The U.S. is the long-time backbone of the international monetary system, but its mounting liabilities raise questions about its ability to sustain this role.
When Pensions Invest Without Checking Risks or Returns
Pension funds have been pouring money into private equity without fully grasping the risks, warned Juliane Begenau, associate professor of finance. “A lot of pension funds are desperate to get higher returns,” she observed. “My sense is that they’re likely not getting the best deal they could if they knew the underlying risks better.” As regulators push for greater transparency, big changes are inevitable, she said.
Corporate Power: The Rules of the Game Aren’t Working
Anat R. Admati, the George G.C. Parker Professor of Finance and Economics, asserted that without stronger rules, companies will continue to prioritize profits over social responsibility. “Voluntary action, however virtuous, will not take us far enough,” she said. “The narratives that somehow rules are bad and that government shouldn’t interfere with ‘economic freedom’ have been harmful.” Governance structures should balance competing interests and hold both the government and the private sector accountable.
Non-Bank Banking Emerges from the Shadows
Fintech companies haven’t displaced traditional financial intermediaries because their business model requires them to be “capital-light,” limiting what they can do, according to Greg Buchak, associate professor of finance. But fintech is eroding traditional banking’s dominance, offering faster, more efficient alternatives. “The doomsday scenario for the legacy American financial system is if these tech companies figure out how to get deposit-like assets,” Buchak said.
ESG Investing: Don’t Expect Investors to Do the Right Thing
Expecting shareholders to accept value-reducing strategies just for social costs is naive, argued Jonathan Berk, the A.P. Giannini Professor of Finance. “I’m not a great fan of people saying, ‘Well, we’ll leave it up to corporations to fix society’s problems,’ because that’s costly for the corporations and costly for the shareholders,” he said. He also cautioned against moving retirement funds to ESG without understanding the risks.
Taking Slow Steps Toward a Digital Dollar
Evolving digital currencies hold promise for financial systems. “Americans, especially those with low incomes, would benefit from a much more open, interoperable, and competitive payment system,” said Darrell Duffie, the Adams Distinguished Professor of Management and Professor of Finance. But the U.S. banking system, dominated by depository institutions, has been slow to change. “The nature of these innovations is that they arrive suddenly,” Duffie said.
