In the Market for Student Investors
Student-managed investment programs are a growing trend in finance education. Making decisions on “real” portfolios prepares finance students for performance volatility—and makes them hot commodities in a cool job market.
By Apryl Motley
Give college students thousands or even millions of dollars of your institution's portfolio to invest? This might seem like a fairly risky proposition. However, for more than two decades, undergraduate and graduate students have had the opportunity to gain real-world experience in managing financial portfolios through the creation of student-managed investment funds. They take their jobs very seriously and, in some instances, have consistently outperformed others in the market.
According to the Association of Student-Managed Investment Programs at Stetson University, DeLand, Florida, student-managed investment programs are a growing trend in finance education. More than 200 programs nationwide allow students to make investment decisions with real portfolios, ranging in value from several hundred thousand dollars to several million.
Nearly 1,500 students, faculty, and professionals representing these programs participated in the RISE X Global Investment Forum, “Redefining Investment Strategy Education.” Held in March, the event was sponsored by the University of Dayton, in association with the United Nations Global Compact.
At the forum, students presented investment portfolios, which were judged in various categories based on their risk-adjusted performance for the calendar year 2009. The University of North Dakota, Grand Forks (UND), and The College of New Jersey, Ewing, were winners at this year's forum in the undergraduate division for their growth-style and value-style portfolios respectively.
Student fund managers and their faculty advisers at these institutions attribute their success to their commitment to making wise investment decisions and overcoming their fears of investing during the economic downturn. (To read a case study about the student investment program at Stetson University, DeLand, Florida, see “Student Investors Gain Returns and Experience,” in the July-August issue of Business Officer.)
Rallying in a Recession
In fall 2008, finance and business professionals around the world watched with great concern as the collapse of Wachovia Corp. seemed eminent. Fund officers for UND's Student Managed Investment Fund (SMIF) were among them. The Wachovia bonds that the student fund owned lost half their value. Eventually, Wachovia was bought by Wells Fargo, and the crisis passed. But the lessons learned from it will last a lifetime for the student investors.
“Managing the portfolio through the economic downturn has been very stressful,” says Chris Femling, a senior financial investments major from Minnesota and the fund's copresident. “But once you look past the stress, you see the opportunity to gain a lot of investment knowledge to carry into the future. As investors, we tend to get trigger happy; we want to sell and pull the plug on failing investments, especially when it's not our money.”
Valued today at $900,000, the SMIF was established in 2005 and originally funded by alumni donors. The fund's faculty adviser, Steven Dennis, who also serves as Aarestad Endowed Chair of Financial Services in UND's College of Business and Public Administration, acknowledges that he heard from the fund's donors more frequently during this time. “Certainly, there was recognition that the portfolio went down,” Dennis says. “People hate to lose money. It's especially hard to manage other people's money and lose it, but the students did a very good job overall. We didn't beat the market that year, but we learned a great deal.”
The opportunity for experiential learning is what leads students like Femling to enroll in Dennis's finance classes. Managing investments during the economic downturn has helped him and the other members of the SMIF investment team “build a sound investment policy,” says Femling. In addition to 36 students, the team includes the dean of the college of business and the chief financial officer of UND's alumni foundation. “You have to learn,” says Femling, “to remain calm through all of the different scenarios so that you can be aware enough to realize opportunities as well as challenges.”
As faculty adviser for The College of New Jersey's Student Investment Fund (SIF), Herbert Mayo took a similar tack in guiding students through the economic downturn. “The fund started in 2000, which couldn't have been a worse time to start,” Mayo says. “While 2007 and 2008 were also bad years, bad times don't discourage the students. They learn the agony of defeat and keep moving forward.”
Mayo raised the necessary capital to launch the SIF by soliciting faculty and alumni for donations and then matching those donations dollar for dollar with his own money during the early stages of the fund's development. The fund is currently valued at a little more than $172,000, which Mayo acknowledges is relatively small in terms of cash managed.
However, the principles that students learn from managing the SIF are no less relevant than if the fund were larger. “I started the fund because I thought that it would be good for students,” Mayo says. “Working in the abstract doesn't help students learn. Working with real money is a better experience.” Once the fund reaches $200,000, it will start to generate scholarships for finance majors.
Funding the Future
While the economy has started to rebound—and financial investments along with it—the rate of unemployment remains high across the nation. Experience in managing higher education institutions' portfolios is paying significant dividends for students as they compete in a tough job market.
Femling, who plans to pursue a career with a private investment firm, says that his participation in SMIF has “provided me with internships to build my resume and put me in front of important people.” In recent job interviews, he estimates that 60 to 70 percent of the conversation has focused on his experience with SMIF. He also notes that UND's investment team has been approached by several other institutions that are considering whether to start funds.
From his perspective, student-managed funds are “one of the most valuable offerings a university finance department can have. It's a real, hands-on experience where you act on information and you can see the outcomes. This is a trend that will continue to grow.”
Dennis agrees, “Student-managed funds will continue to grow because experiential learning will be important for students studying finance and investments. They need to be in the market and feel it.”
While serving as SMIF's faculty adviser is three times as much work for him as teaching a regular class, Dennis emphasized the importance of having a faculty champion if your institution has considered starting a fund: “If there isn't someone who's going to take it and do a good job, then it will flounder. You need to identify a strong leader to manage the program and do something with it.”
APRYL MOTLEY, Columbia, Maryland, covers higher education business issues for Business Officer.