UConn Launches the Student Managed Fund (Released: 3/01/00)
by David Bauman, Office of University Communications
STORRS, Conn. -- Move over, Beardstown Ladies. The UConn Student Managed Investment Fund will not be your grandmother's investment club.
Unlike that now-famous Illinois club of small-town salt-of-the-earth-investors, two select groups of UConn Finance students are being staked with $1 million to begin buying and selling stocks and bonds and manage the new Student Investment Fund being launched by the School of Business.
The students executed their first stock buys on Friday, Feb. 11, and commenced the process of building their portfolios using monies provided by the UConn Foundation. The Foundation's Board of Directors recently agreed to allow a portion of their endowment to be managed by the students with guidance from faculty and an Investment Advisory Board (IAB).
The Foundation has made available $500,000 for the start-up phase, of which $150,000 was invested on Friday by each group of undergraduate and graduate business student managers. Another $500,000 will be gradually added by the Foundation as the students gain experience with the management and mechanics of the fund.
By allowing students to invest real money, educators say, schools gain an advantage in recruiting the most gifted students. And the students, in turn, can tout real-life investing experience to prospective employers, improving their chances for placement with the prestigious financial institutions in Wall Street.
While the concept of Student Managed Fund is not entirely unique, such funds exist only in a select group of business schools across the country. And, the UConn School of Business fund is possibly the largest fund at inception, and already larger than many other similar funds that have existed for some time.
As such, UConn Foundation's generous decision has allowed School of Business students both a tremendous opportunity, and a great responsibility. The University of Connecticut Foundation, Inc. is a private, tax-exempt corporation, which secures contributions from private sources. It manages those funds for maximum benefit to the University. The Foundation has assets of more than $210 million, managed through than 1,800 funds.
"Starting with a fund this size will not only help participating students pursue lucrative careers in the financial sector, but also enhance the School of Business' image as the only public research university in New England with a student-managed fund," says Chinmoy Ghosh, an associate professor in the Department of Finance, and the fund's faculty advisor.
"Our goal is to provide students valuable hands on experience in security research, valuation of risky assets, asset allocation and portfolio management," adds Ghosh. "While performance will remain the primary focus, and will be reviewed at regular intervals, we realize that no investment manager can beat the market on a consistent basis. Rather, this is an effort to deliver high quality practical education in an area of considerable interest to students and employers alike. We expect the fund will increase the marketability of our students in industries such as equity research, investment banking, commercial banking and corporate finance."
The investment fund is being managed by two groups of students -- one group includes 11 MBA students; the other comprised of 8 undergraduate business majors. Each group will ultimately have the responsibility for managing $500,000. They operate as completely separate group of managers, with no interaction in trading decisions.
"The decision to create two different groups was motivated primarily by the idea of studying whether, and why, two groups of student managers, with similar background preparation, and training, come up with different choices of risky assets", Ghosh explained. Care has been taken to include a distribution of junior and senior undergraduates in order to ensure continuity and a smooth transition from year to year.
To start the new investment fund, Ghosh chose mostly second-year MBA students who will participate in the management of the portfolio for a year. Members of the undergraduate team were chosen and are advised by David Fricke, a lecturer and Ph.D candidate in the Finance Department, who teaches the Investments course in the undergraduate program and has developed a Series 7 (Stockbroker Training) program through the UConn School of Continuing Education.
Students must do all the required analysis for investing decisions, researching the investment information available at the library, and on the World Wide Web and using various analytical software provided by the School of Business. While the final trading decision rests with students, no trades are allowed until full analysts' reports are submitted to the Faculty Adviser for review at least twenty four hours in advance.
In weekly meetings individual students pitch and defend their investment ideas to the their fellow members who vote on all stock sales and purchases. Individual members in each group has assigned responsibilities for trading, and preparing reports which must be submitted to the Foundation.
And, like money managers elsewhere, the students have to answer to their "clients," in this case The UConn Foundation, and a five-member Investment Advisory Board, composed of professional money managers who are all School of Business alumni. These five members are:
Along with monthly reports on the performance of the fund, the students must produce two in-depth reports of their portfolio's performance for the Advisory Board, including recommendations on whether to continue holding the stock, whether to buy more or sell it. The Board has set up ground rules over the selection of stock classes and the amount that can be invested in any class. The students, however, are responsible for setting the price range for buying and the price triggers at which the fund will sell the stocks to take a profit or stem losses.
For all their work, the students receive no academic credit for participating in the investment fund. But Ghosh anticipates that by the next group of managers are chosen, students would be competing to be chosen to participate in the management of the fund.
Ghosh and Fricke are satisfied that the selections made by the students last Friday reflect diligent research and analysis by both groups.
The undergraduate managers decided to allocate $150,000 equally among six stocks, the two most notable ones being EMC Corp (NYSE: EMC) and Exodus Communications (NASDAQ: EXDS). The MBA allocation is more diversified and involves allocation among twelve stocks. Their portfolio includes popular stocks like Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC). Not surprisingly, both teams independently chose Qualcomm (NASDAQ: QCOM) and JDS Uniphase Corp (NASDAQ: JDSU).
While there is no requirement that managers must consider Connecticut companies to be included in the fund, Ghosh hopes that as the fund becomes known in the state, companies will contact student managers for inclusion of their stocks in the fund.
The interaction can enhance the visibility of these companies within the state, and facilitate a strong relationship between the companies and School of Business. As such, the fund is another critical element to School of Business's continuing outreach activities, Ghosh adds. Foreign stocks are allowed too, but only in the form of American Depository Receipts (ADRs).
"We see tremendous benefits to the students, most important being experience of managing real time money," says Ghosh. "That should have great value when they enter the job market. Also the potential for exposure to the business world and portfolio managers makes me confident that students will compete to participate in this opportunity. And for the University and School of Business in particular, this is a another step in positioning us as a premier educational institution where students get the opportunity to apply basic research to tools to real world issues."