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Business Officer Magazine

Unexpected Gains

Students managing some of the institution's endowment funds? For hundreds of campuses, these programs offer not just return on investment and experiential learning, but also a recruiting edge and a stronger alumni network.

By Apryl Motley

*Given the opportunity, college and university students around the country—and even the world—are eager to show their institutions the money by developing student-managed investment funds (SMIFs).

"About 15 years ago, only 40 universities had funds, and we started the Association of Student-Managed Investments Programs," says Christopher Ma, the association's current president and director of the George Investments Institute at Stetson University, DeLand, Florida. "Now it's close to 400 in the U.S. alone. Programs have just started in China, Thailand, and Malaysia as well. This is definitely a trend. I see more and more universities interested in this on a global level."

Recent research on SMIFs supports Ma's observation. When reporting on a survey he conducted in 2007, Edward C. Lawrence, professor of finance at the University of Missouri–St. Louis, noted that more than 300 universities worldwide "offer students the chance to learn about portfolio management by investing real money." According to Lawrence, at that time, students were directly managing more than $407 million in assets.

In their 2009 research, "Evidence on Student-Managed Funds: A Survey of U.S. Universities," Zhuoming "Joe" Peng and coauthors observed that more than 60 percent of SMIFs were not started until the second half of the 1990s. The student-managed investment fund at Bucknell University, Lewisburg, Pennsylvania, is a case in point.


Socially responsible investing is a student concern, both for institutional endowments and for student-managed investment funds. See "Taking Responsibility" in Business Officer Plus at

Started in 2000 with an initial alumni contribution of $200,000, the fund's market value today is $1.4 million. It is a primarily stock-oriented portfolio maintained as a separate portfolio within the university's endowment. "We appreciate the professionalism that students bring to managing the fund," says Christopher D. Brown, Bucknell's chief investment officer. "We're pleased with the results, and we monitor them and treat the students the same as we do our other asset managers."

Running in Real Time

It is that real-world accountability that sets SMIFs apart from other college courses in finance. At Bucknell, the SMIF is a full-fiscal-year experiential course in which a select group of seniors manages a portion of the endowment fund. Most semesters "more students want in than can take the class. Only the best students are enrolled, which provides a level of comfort to the university," Brown notes.

"Bucknell prides itself on experiential learning," says David E. Jensen, an associate professor of management and codirector of the SMIF. "If you're really going to feel what investing is about, you need the aspect of real losses to fully understand what fiduciary responsibility really means. We tried simulations, but nothing replaces that real-world experience."

"Initially, we wrote the charter very conservatively because we had no experience with 22-year-old students making investment decisions. What we discovered is that they take the responsibility very seriously and are very cautious," offers Robert A. Needham, an associate professor of management and codirector of the SMIF.

Bucknell seniors managing approximately $1.4 million of the university's endowment is serious business that the institution did not enter into lightly. Each spring, students managing the fund nominate four of their peers to make presentations to the investment committee of the university's board of trustees.

Needham says it's essential for them to present their results—"what worked and what didn't. It's important to have the accountability of reporting to your boss. The committee is the boss. The learning experience is cemented by reflecting on the results of their decisions."

So far the SMIF has delivered return on investment. Since its inception in 2000, the fund has returned 56.06 percent, outperforming the Standard & Poor's Index by 11.68 percent. While Brown and others in the university's administration have been pleased with the fund's financial results, he believes the long-term value of the SMIF goes beyond dollars and cents.

ROR—Return on Relationships

"We believe so highly in the work that they do," Brown says. "We recently hired one of the [program] participants to work as our investment accounting analyst.

"As this network of students grows and they get seasoned in their careers, they can help us meet other asset managers, which could enhance the returns of the university's endowment over the long term," he continues.

Like Bucknell, other higher education institutions have recognized the important role of SMIFs in recruiting students and reengaging alumni. "We give at least three tours on a daily basis," Stetson's Ma says. "There's a tremendous amount of public interest in our program and seeing our trading room."

"The SMIF is an excellent experience that's not available everywhere; it definitely helps us with recruitment."

Louise Burney, Millsaps College

Paul Bobrowski, dean of the School of Business Administration at the University of Dayton, Ohio, says the institution's Flyer Investments Fund (established in 1994) in the Davis Center for Portfolio Management has given him "a great opportunity to distinguish the university's program during a time when business schools are looking for distinctive features to set them apart with students and employers."

"It's part of our selling strategy," says Louise Burney, vice president for finance at Millsaps College, Jackson, Mississippi. "We're primarily a liberal arts institution, and we're unique in that we have an Association to Advance Collegiate Schools of Business [AACSB] accredited business school." Students at the college manage the General Louis Wilson Fund, which was started in 1989 with $87,500 from private donors. Today the fund is valued at close to $300,000. According to Burney, "The SMIF is an excellent experience that's not available everywhere; it definitely helps us with recruitment."

James Kelly, director of the Gabelli Center for Global Investment Analysis at Fordham University, Bronx, New York, and faculty adviser for the university's SMIF, says, "It makes sense for any university's administration to consider allocating a portion of the endowment for a SMIF." Fordham's SMIF was established in 2010, and students manage $1.2 million of the university's endowment.

"It's becoming a recruitment tool for the university," Kelly continues. "There's tremendous interest among incoming students and their parents."

Chief business officers and chief investment officers might consider these factors as they evaluate whether to continue to operate an existing SMIF or launch a new one.

Recruitment for the Real World

"There's no substitute for students actually managing real money," Kelly emphasizes.

It was this kind of opportunity that weighed heavily in A.J. Ziegler's decision to enroll at the University of Dayton. He graduated in May with a bachelor of science degree in business administration after completing a double major in finance and business economics.

"The SMIF was a big draw because of the real-world experience that I would get," he says. "Getting involved with it was my main goal in coming to the university."

Bucknell's Needham agrees: "One of the benefits to the institution is that the SMIF has helped in recruiting students interested in investments and finance. There are actually students who have decided to come here because of the SMIF."

During Ziegler's senior year at the University of Dayton, he served as a senior fund manager and made actual buy and sell decisions. Currently, the Flyer Investments Team manages about $16 million of the university's endowment. 

"This is truly a student-managed fund," says Thomas Burkhardt, the university's vice president for finance and administrative services. "We look at the Flyer Investments Fund as one of our equity managers."

"My expectation is that they be as professional and diligent as any of the other investment groups managing part of the endowment," says Bobrowski, Dayton's business school dean.

By all accounts, students take their role as fiduciaries very seriously. "Students take the management of the university's funds very personally," Stetson's Ma says. "That's what I want them to feel. This is real money."

At both Bucknell and the University of Dayton, student fund managers must make a commitment to managing the SMIF's portfolio during the summer. "We felt strongly about the fund having a long-term horizon," Bucknell's Needham says, "so we decided not to cash out over the summer."

"One concern that we had initially was what to do when the students aren't here," adds the University of Dayton's Burkhardt. "The student team is in contact with each other during the summer."

"We're now expecting that students manage the fund throughout the entire year—in the summer and during breaks," says Bobrowski. "In the past, the fund was left dormant, and opportunities were missed. Things are being done at a much different level and with more precision and accuracy."

Students like Ziegler expect to be held to high standards and appreciate the responsibility their institutions have entrusted to them. "It's one thing to set up a course, but it's a whole other level when your university is willing to let students invest $16 million," he says. "It means the university believes in what it teaches and trusts its students."

 "Every single fund manager in the real world is held accountable and has to deal with risk," Ziegler continues. "I've been in the fund making actual buy and sell decisions for two years. I made a lot of good ones, but I am really learning from the bad decisions that I made. You don't get that with a mock portfolio."

Reengagement and Relationship Building

In addition to getting real-world experience, student fund managers develop valuable relationships with peers and alumni while working with a fund. During the beginning of Ziegler's senior year, he received an offer from BlackRock, the world's largest asset manager, and began work there earlier this year as an analyst in BlackRock's Alpha Investments Fundamental U.S. Equities group.

"We get a lot of participation from alumni because of the SMIF. They come back to participate in class, which gives students practical exposure to alums in the finance industry."

David E. Jensen, Bucknell University

He credits Davis Center alumni with helping him to be successful during the selection process, and he's already on the hunt for internships for University of Dayton students: "I want to proudly represent the university and the alumni who helped me."

Bobrowski refers to this as the "aftermarket effect." "Our students are well-equipped to move into the financial industry, so we're able to develop good relationships with firms who continue to come back and hire our students. The SMIF has raised our profile," he says.

Indeed SMIFs have provided another avenue for alumni to reengage with their alma maters. "We've had alums that have connected with the university through the student-managed fund who hadn't been involved before," Bucknell's Needham says.

"There's an alum who's been involved for 12 years," he continues. "He comes every year to give a presentation on asset management and allocation."

"We get a lot of participation from alumni because of the SMIF," adds Jensen, a codirector of the Bucknell SMIF. "They come back to participate in class, which gives students practical exposure to alums in the finance industry."

At Millsaps College, Neely says student fund managers "take trips to show alums what we're doing. We've got a network of alums who can help them find jobs." In addition, alumni working in the financial industry are invited to serve on the fund's advisory board, which meets semiannually.

Student fund managers at Bucknell travel to New York annually to make presentations to alumni. The Bucknell Finance Network, an alumni group, has been very involved with the SMIF.

Clearly, ties run deep among SMIF alumni like those at the University of Dayton, who formed an alumni subgroup called the Davis Center Graduate Association. Members of the association return to campus in large numbers for the annual RISE (Redefining Investment Strategy Education) Forum and competition hosted at the university.

"We worked together, and we're friends," Ziegler says. "There's a real opportunity to build bridges across generations and maintain a high level of alumni involvement."

APRYL MOTLEY, Columbia, Maryland, covers higher education business issues for Business Officer.

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Risk Versus Reward

Do the rewards of increased opportunities for student recruitment and alumni re-engagement warrant the risk institutions take when they permit students to manage endowment funds? Administrators and faculty at the institutions profiled here believe they do, and encourage business officers to consider three key steps for mitigating the risks associated with student-managed investment funds (SMIFs).

  •  Identify a source of funding. Several funding models are typically used to establish and maintain SMIFs: actual endowment funds, separate portfolios or funds within the institution's endowment, and funds provided by a foundation or donor. In their spring 2004 article in Advances in Financial Education, Millsaps' Neely and his coauthor Philip L. Cooley of Trinity University, San Antonio, identified several sources of initial funding for SMIFs, including families and individuals, university endowments, corporations, and foundations. According to Neely and Cooley, initial funding for SMIFs sometimes comes from more than one source.

Each institution must be comfortable with the funding model it selects. "We were fortunate in that donors gave the money to start the fund," says Stetson's Ma. "There's less pressure than at schools that took money out of their savings. Usually, these schools have a predicament because on the one hand, they want students to make decisions, but they don't want them to lose money."

The initial funding for SMIFs often comes from alumni donations or major gifts from outside donors. In other instances, institutions like the University of Dayton allocate funds from the university's long-term investments to the SMIF. "We made our first $1 million investment in the fund in 1999," Burkhardt says. "At that point, we put additional controls and processes in place for the students."

  • Establish clear policies and parameters for the fund. "We treated the establishment of the fund like starting a new relationship with an investment manager," Bucknell's Brown says. "Any concerns were addressed in the fund's charter, which serves an investment management agreement. For example, we asked them not to use leverage in the portfolio."

"Our main concern when we were writing the charter was protecting the corpus and maintaining fiduciary responsibility to the university," says Jensen, codirector of the Bucknell SMIF.

However, there are provisions for modifying the charter. According to Jensen, "Since inception, given the serious approach of the students, the charter has been modified to permit investing in additional asset classes, including several approved option strategies."

At Millsaps, students are bound to an investment policy statement in making their decisions. Fordham's James Kelly developed a formal business plan for the university's SMIF that was reviewed by the dean of the business school as well as the chief business officer, and then approved and funded by the board of trustees.

Fordham's SMIF is one of the few student-managed funds that invests globally in stocks, bonds, commodities, and the foreign exchange market. "We deliberately chose to go global to give students the broadest possible exposure to all asset categories," Kelly says. "Training students for global careers is one of our goals."

Any number of controls and parameters may be incorporated into governing SMIFs, and policies requiring socially responsible investing may soon be among them. "We have a list of stocks that we don't buy," University of Dayton's Burkhardt says. "Students think about products and how companies make them. They buy companies that are good corporate citizens."


  • Let students take full responsibility for the fund. One of the best strategies for managing risk is letting students have ownership of the fund. As codirectors of Bucknell's SMIF, Jensen and Needham emphasize the importance of students stepping up to run the fund. "Because of the university's focus on experiential learning early in their undergraduate coursework, we're able to give them a lot of responsibility up front. Our approach is, 'Get in there and do it. We're not going to hold your hands,'" Jensen says.

"Students will take the responsibility much more seriously if they believe it's truly their fund," Needham agrees. "We try to stay in the background. We only have a veto if there's incomplete or inaccurate information presented during the stock pitch.

"We've bought stock that neither of us liked, but it's a student fund," he continues. "You have to put your ego aside."

Stetson's Ma contends that at some institutions, "Investment committees make the decisions and include a few students as tokens in the voting process. If you were a student, would you take ownership of this process or the fund?"

Generally, student fund managers are well aware of the risks involved with making investments on behalf of their institutions. In fact, after its first year in operation, students managing the fund at Fordham appointed a risk manager to manage exposure and other risk measurements.

Ultimately, a level of trust must be developed among the student fund managers, their advisers, and the institution. "I trust your kids more than you trust your kids," Ma tells parents during orientation. "I'm going to give them $3 million to manage."

"Even in a year when we haven't beaten the market, I've never seen the student fund managers do anything reckless," Millsaps' Burney says. "Sometimes they make a plan and it doesn't work, but it's always based on concrete analysis."

According to the University of Dayton's Burkhardt, "There are plenty of good ways to put controls in place to satisfy the toughest business officers. They will be pleasantly surprised when they sit and talk with students. It's fulfilling to see young people serious about what they are doing."


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