James Mallett, Stetson University
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James Mallett, Stetson University James Mallett, Stetson University Document Transcript

  • Experiment No More: The Long-Term Effectiveness of a Student-Managed Investments Program James Mallett, Stetson University Lawrence J. Belcher, Stetson University G. Michael Boyd, Stetson University Abstract As we begin a new year, there are now over 400 student-managed investments programs worldwide (Prescott (2007). What was once viewed as a very risky and unproven academic exercise undertaken by a handful of schools is now an institutionalized experiential learning tool that is increasingly sought by business schools worldwide. Stetson University’s Roland George Investments Program was a pioneer on the SMIP scene, and has become a national leader in student-managed funds. This paper looks at the long term development of the Roland George Program and offers some evaluation of its successes and failures. This could serve to help other schools in their long term SMIP progress. INTRODUCTION Student managed investment programs (SMIP’s) seem nowadays to be a relative fixture on the collegiate scene. For the vast majority of programs, however, their history is a brief one. In a recent survey of SMIP’s Prescott (2007) had over 400 respondents. If we go back in time on that list to 1980, however, we would find only about 14 funds that listed a start date up to 1980. The growth in SMIP’s, therefore, has occurred primarily in the 19990’s and during the 2000’s. Stetson University’s Roland George Investments Program was one of those early pioneers on the SMIP scene. The startup and growth of the program occurred despite the fact that most schools that were approached with the idea turned it down. This is in contrast to today, where donors or deans of business schools are trying to get schools to establish SMIP’s. Along with the growth in programs has come an increasing sophistication in what the programs can do. This has been helped in a huge way by technological advances in trading and portfolio management software. This paper details not only the progression of the Stetson program, but also the trends in student funds in general. This can serve to inform other schools of the history, and discuss ways in which such programs add value to an academic institution. THE PROGRAM”S EARLY YEARS Stetson University in DeLand, Florida was an unwitting pioneer in the student fund movement when the fund began in 1980. When the Roland George Investments Program (George Program) was first profiled in the academic press in 1984, student-managed investment portfolios were a rarity (Bear & Boyd, 1984). The George Program, in fact, came into existence through pure luck, the result of simply being in the right place at the right time. The details of its inception can be found in the fund’s 1981 Annual Report.
  • Roland J. George, a native of Crawford County, Pennsylvania, practiced law in New York City for two years before turning to a career in investments. He joined the brokerage firm of Smith & Barney in 1929, just in time to get caught in the market crash. He managed to survive the lengthy downturn and remained in the investment field, eventually retiring from the firm of Lionel D. Edie in 1961. Sarah Wilson George, also a native Pennsylvanian, was as a librarian at the New York Academy of Medicine when she met Roland at a social event. They were married in 1934. For 20 years, the couple lived on his income, investing all of hers in a portfolio of speculative and growth stocks. Over the years, Roland George became convinced that for investors, the world was the best possible classroom. While theories were important, he believed that some aspects of successful investing are best learned from practitioners — and from practical experience. He often thought about how he might bring such experience into the classroom. In 1961, the Georges retired to Princeton, New Jersey, and eventually to a small town in Central Florida. Roland continued to invest and to develop his ideas about a “practical” method of investment education. He contacted a number of universities with proposals to finance a hands-on, practitioner-taught course. Ironically, his offers were turned down! Upon Roland George’s death in 1979, Sarah made her husband’s quest her own. She approached Dr. David W. Nylen, Dean of Stetson’s School of Business Administration, who saw the real value in her offer. After convincing University officials of the merits of the program, the Roland George Investments Program was inaugurated on August 20, 1980, when Mrs. George transferred shares of ten common stocks and a money market fund to Stetson University. At that time the assets had a combined market value of $481,498.86. One of the key elements of Mr. George’s vision was his insistence on “real world” instruction. Mr. B. Carter Randall of Orlando was recruited to be the George Program’s first Visiting Professor. A senior vice president of Sun Banks of Florida (now SunTrust), Randall was nationally known for his long tenure as a panelist on PBS Television’s “Wall Street Week,” which he often guest-hosted in the absence of Louis Ruckheyser. The first class, which began in February 1981, comprised 23 students, including four from the MBA program. The rest were upper-division finance majors. From the outset an emphasis was placed on teamwork, an approach that has prevailed throughout much of the program’s life. An important task that faced the first class was to restructure the gift portfolio in such a way as to split it into “income” and “growth” components, while making certain that there would be plenty of income (interest plus dividends) to sustain the program. In March of 1981, all but one of the original gift holdings was sold, and the remaining one liquidated by the end of May. The students structured an income portfolio that had a cost basis of $223,789.18 and projected annual income of $23,358.75, for a current yield of 10.4 percent. Just over half of the portfolio was invested in U. S. Treasuries (bills, notes, and bonds) and Aaa-rated corporate bonds. Aside from a small position in money market funds, the rest was in high-grade common stocks with an average dividend yield of 7.98 percent – astounding by today’s standards! The growth portfolio comprised 17 stocks (including the remaining gift stock which was soon sold) across a wide variety of industries, at a cost of $251,057.86. Another $31,391.89 was put into money market funds and Treasury bills, for a total account value of $282,449.75. On May 31, 1982, the George portfolio’s income and growth account values stood at $233,722.36 and $297,354.37, respectively. The income fund actually held up better than these figures suggest, as $9,500 had been withdrawn from it prior to May 31 to meet program
  • expenses. In light of the prevailing macroeconomic environment, we felt that the Roland George Investments Program was off to a good start. THE CLASS OF ’82: GROWING PAINS One of the key objectives of the Roland George Program was to have the portfolio management course taught by a Visiting Professor who is both (1) a professional practitioner in the investments field and (2) living in residence during the semester the course is offered. (Prior to the 1990-91 academic year, the course met only in the spring semester, due to budgetary limitations.) These requirements, we found, are not easy to fill simultaneously. In Carter Randall, we had a reasonable compromise: a prominent money manager who lived within commuting distance of the campus. Soon we began to wonder, however, what we would do for an encore? The answer came from the department chair’s filing cabinet. After Mrs. George’s gift received national news coverage in the fall of 1980, several unsolicited offers of assistance had been received from the investment community. One was from Gerald T. Kennedy, who ran a five-year-old investment management firm in St. Louis. Prior to founding Kennedy Capital Management, Inc., Kennedy had been a plant manager for Monsanto Company and more recently was in charge of training and development of other Monsanto managers worldwide. Kennedy Capital was a young firm on the fast track to success, managing pension funds and private investment portfolios. In addition to being its president, Gerry Kennedy served as manager of the Templeton Kindness Fund, N. V. He agreed to serve as Visiting Professor for the spring semester of 1982 and to be in residence for the first and last three weeks of the course. In addition he would commute from St. Louis for the intermediate class periods. A number of classes would involve the services of nine guest lecturers, including Carter Randall and James Stowers, then-president of 20th Century Growth Funds. This began a long and valuable tradition of booking guest speakers for the program from various parts of the investment industry. The semester began with a visit from Carter Randall, who reviewed the existing portfolio’s performance for the class. Kennedy then spent several sessions explaining the somewhat rigorous statistical approach his firm used to select stocks for its clients. From empirical studies of the impact of various investment criteria on stock returns, the students learned the virtues of such screening devices as earnings acceleration, low price-to-earnings ratios, and recent insider buying. Subsequent presentations by the eight other guest lecturers addressed a wide range of topics. These talks sometimes presented students with the dilemma of conflicting opinions, to the consternation of a few who would have preferred a single “right” way to make investment decisions (Bear & Boyd, 1984). In the early days of the George Program, we reported our progress in terms of two different “year-end” dates. One was May 31, the close of the program’s fiscal year. The other was the anniversary of the previous class’s portfolio changes. This latter date is, of course, subject to variability, depending on the class’s timetable and agenda. Since most of the Class of ‘81’s investments were made in March, we adopted March 31 of the following year as an approximate portfolio anniversary date and used it to measure the class’s performance. These results – as well as fiscal year-end portfolio values – were published in the program’s 1981-82 annual report (Jackson & Nylen, 1982, pp. 6-10). This dual-accounting practice of showing class results alongside fiscal year-end statements proved cumbersome, however. In 1984, we began limiting
  • the annual report to fiscal year values, including two consecutive year-end statements of assets and an intervening statement of operations. For the period March 31, 1981, to March 31, 1982, the income portfolio’s total return was 11.5 percent, after program expenses. The growth fund’s total return was only 6 percent, an understandable result in a time when double-digit bond yields are still rising. What is pleasantly surprising, however, is that during this same period, the Dow Jones Industrial Average decreased 18 percent while the Standard & Poors 500 Index fell 16.1 percent. (The class of 1983’s March-to-March income and growth fund returns were even more spectacular, at 27.8 percent and 44.4 percent, respectively (Jackson & Nylen, 1983). When it came time to reposition the growth portfolio, the Class of ’82 decided to adopt earnings acceleration, low P/E, and recent insider buying as “must” criteria, with a somewhat longer list of “high wants”, or secondary criteria. On the basis of these attributers, they sold nine of the growth fund’s 16 remaining stocks and replaced them with 11 of their own choices. At the same time, they restructured the income portfolio, replacing all of its stocks and selling one of its bonds. In the expectation that interest rates would fall during the next year, they also bought several long-term Treasury and Aaa-rated corporate bonds that were selling at deep discounts. The net effect of these transactions was to change the income fund’s asset allocation substantially. While Treasuries still held a slight edge over corporate bonds, the ratio of all bonds to stocks rose from just over 1.00 to 3.27. These changes took place in April and early May. In addition, the income fund had received a gift from Mrs. George during the year in the form of two residential mortgages valued at $84,466. On May 31, 1982, the market values for the income and growth portfolios stood at $374,160.70 and $407,188.00, respectively. REFINING THE VISION: OTHER DISTINGUISHED VISITING PROFESSORS AND LECTURERS In 1983, Kennedy arranged for Mr. Max Zavanelli, president of Zavanelli Portfolio Research, in Chicago, to spend five weeks in full-time residence supervising student research. Zavanelli’s impact on the program was unique: It was he who introduced the use of microcomputers, still in their infancy, to access stock quotations, monitor portfolios, and screen potential investments from large databases. Gerald Kennedy remained active as a guest lecturer and was a great friend and supporter of the program until his death on March 17, 1999. In the spring of 1988, Carter Randall returned for a four-year stint as Visiting Professor. Early in this period, the program reached a major turning point: On September 4, 1988, Sarah George passed away. Under the terms of her will, she left a gift of $3.6 million to establish the Roland and Sarah George Investments Institute. (The first step toward an Investments Institute actually came a year earlier, when Mrs. George established a $1.1 million trust fund to support investment education at Stetson.) This generous bequest made it possible for us to offer the course every semester, which we began to do in the fall of 1990. A key step in this direction was the endowment of the Roland and Sarah George Chair in Applied Investments. Max Zavanelli, who had become a program “regular” after his first visit in 1983, succeeded Mr. Randall, serving as the first Roland and Sarah George Professor of Investments from the fall of 1991 through spring 1994. Following Max in the position were Ned W. Schmidt, CFA (1994-97); Christopher K. Ma, Ph.D., CFA (1997-98); and Frank G. Castle, CFA (1998-2001). Dr. Ma returned to Stetson for the 2001-02 academic year and currently serves as George
  • Professor of Applied Investments. Each of these individuals is a seasoned professional who has brought his own distinctive portfolio management style to the program. For more than 25 years, the Roland George Investments Program has been enriched by the participation of nearly 90 guest lecturers. Their ranks include such notables as Lee R. Cole, a developer of liquid yield option notes (LYONS) at Merrill Lynch; Robert Hagin, vice president of Kidder, Peabody and author of the Dow Jones-Irwin Guide to Modern Portfolio Theory; Robert Stovall, president of Stovall Twenty-First Advisors and frequent panelist on “Wall Street Week”; and Benjamin Zacks, executive vice president of Zacks Investments Research. And many of our guest speakers – including securities analysts, portfolio managers, and a commodity trader – are graduates of the George Program. The program’s budget is structured to allow for travel expenses and honoraria to support this aspect of the program, which again reinforces the original vision of the namesake. TWENTY-EIGHT YEARS OF GROWTH From its initial gifts of around $568,000, the George Program’s portfolio has grown in value to approximately $2.7 million, as of June 30, 2008, with positive returns in 22 out of 28 years. With an average yearly return of over 7%, performance has been remarkably steady, given that our numbers are net of program expenses. All things considered, we believe that our students – and their practitioner-mentors – have acquitted themselves nicely. Summary of Twenty–eight Year Performance 6/30/2008 Date Income Growth Total 08/20/80 **initial gift** $ 481,499 05/31/81 $ 233,722 $ 297,354 531,076 05/31/82 337,559 264,303 601,862 a 05/31/83 374,161 407,186 781,347 05/31/84 344,588 315,376 659,964 05/31/85 402,196 410,290 812,486 05/31/86 471,512 476,936 948,448 05/31/87 476,248 498,175 974,423 05/31/88 467,783 434,509 902,292 05/31/89 496,747 475,699 972,446 05/31/90 509,761 569,591 1,079,352 05/31/91 579,978 537,431 1,117,409 05/31/92 616,547 562,297 1,178,844 05/31/93 687,708 778,023 1,465,731 b 05/31/94 779,942 775,785 1,555,727 b 05/31/95 790,106 749,717 1,539,823 b 05/31/96 792,512 882,426 1,674,938 b 05/31/97 798,163 904,564 1,702,727 b 05/31/98 1,027,786 975,195 2,002,981 b 05/31/99 1,021,160 1,113,886 2,135,046 b 05/31/00 1,004,273 1,298,380 2,302,653 b 05/31/01 1,218,729 1,468,381 2,687,110 b 05/31/02 1,319,005 1,481,500 2,800,505 b
  • 05/31/03 1,517,821 1,324,353 2,842,174 b 05/31/04 1,308,252 1,484,329 2,792,581 b 05/31/05 1,370,963 1,491,732 2,862,695 b 05/31/06 1,227,069 1,631,060 2,858,129 b 05/31/07 1,296,182 1,898,606 3,194,788 b * 06/30/08 1,397,712 1,288,630 2,686,342 b Since its inception in 1980, over 500 students have participated in the George Program’s portfolio management courses. A key advancement in the curriculum corresponded with the establishment of the George Investments Institute and the addition of a funded Visiting Professor. With the full time availability of a dedicated faculty member, the program was split into a two-semester course sequence in the late 1980’s (Most whose schedules would permit have opted for the full year.) More than a hundred have been awarded Roland George Merit Scholarships. Virtually all of our graduates are able to find the kinds of jobs they seek in the investment and banking communities, and many report that it was their George Program experience that made the difference. (Several have actually gone to work for program lecturers or Visiting Professors!) In 1994, the George students began to write and publish the George Inve$tments View, a semi-annual newsletter containing market reviews, industry reports, portfolio updates, op-ed columns, and stock valuations and recommendations. Over its 13-year run, the View has steadily grown in both content and appearance, and today is a professional-quality publication. It is sent regularly to a mailing list of program alumni, associates, and friends. One of the most visible areas of program growth has been computerization. When Professor Zavanelli first brought an Apple II into the classroom and connected it via telephone modem to his mainframe in Chicago, we felt sure that a new era was at hand. But how little we really understood what was to come! From floppy-disk-based versions of Value Line and Standard & Poors screening software, we soon found ourselves riding the crest of the technology wave. In 1996, we received a gift of equipment from Bridge Information Systems that included a network server, market-accessing software, and three dedicated terminals. That system, along with online connections to Bloomberg Financial Services, and the Dow Jones News Retrieval system, changed forever the way our students would analyze investments and track portfolios. Creation of the Roland and Sarah George Investments Institute has given us the means to stay at the forefront of technology, most recently with the addition of a student trading room in the newly renovated Lynn Business Center. While the room itself was provided for in the building fund, the Investments Institute helped furnish it with the 14 two flat-panel Dell computers, trading desks, a stock ticker that provides among other things continuously updated values of the George portfolio, and an electronic data wall. NATIONAL GROWTH AND RECOGNITION If we look at the national (and now international) scene, the growth in numbers, sophistication, and diversity of SMIP’s has been amazing. From their beginnings as risky experiments, there have been major advances in acceptance by university administrations. We will briefly consider some of the indicators of this pattern of growth and sophistication. Numerical Growth in SMIP’s
  • If we examine the data provided in the Prescott survey, the growth in SMIP’s has been accelerating rapidly, with explosive growth in the 1990’s and since 2000. In the 1950’s for example, in the United States 6 programs were listed as with starting dates. In the 2000’s, on the other hand, there were 139 programs created in the United States. With this growth has come ever-increasing sophistication. There are now programs that are specifically for undergraduates as well as MBA-only funds. There are equity funds, fixed income funds, venture capital funds, quant funds, funds that use derivatives, funds that have real estate, socially responsible funds, and several permutations thereof. Another school is creating a fund specifically to manage student activity fees to provide scholarships for their students (“An Experiment in Endowments at Wesleyan”, New York Times, May, 2008). In short, schools have realized that a SMIP can be an incredible teaching tool. STUDENT MANAGED INVESTMENT PROGRAMS 140 130 120 110 100 90 80 70 United States 60 Foreign 50 40 30 20 10 0 1950's 1960's 1970's 1980's 1990's 2000's Source: SMIP Survey, Lawrence (2008) Portfolio Competition In April 2001, the University of Dayton’s Center for Portfolio Management and Security Analysis held a national competition for student-managed investment programs as part of its RISE (Redefining Investment Strategy Education) symposium. The competition covered the 12- month period ending January 31, 2001. A panel of portfolio managers from across the United States awarded prizes in three categories of management: growth, value, and blend. Judging was based on both the quality of student presentations and risk-adjusted portfolio performance. This was the first of what has become an annual event at the RISE Symposium. The Roland George Program took top honors in the blend category, with a stock portfolio return of 37 percent, versus a 4.7 percent return for the S&P 500 Index. According to Mutual Funds magazine, Stetson’s performance in the RISE competition beat all but nine of 660 professional mutual fund managers tracked by Morningstar who use the blend style of investing (“Students Smash Funds,” 2001). The winning team members shared credit with the preceding class, whose stock selections helped make the victory possible (Mallett, 2001). As a reward, the winners in all three categories were flown to New York, where they opened the NASDAQ MarketSite in Times Square on April 30.
  • The second annual RISE competition was held the next year in early February. Again Stetson entered the contest, this time in the value-investing category. Our students won their division for the second time in two years. For the 12-month period ending November 30, 2001, the George equity portfolio showed a total return of 20.4 percent, while the S&P 500 Index was off by 13 percent. Team members were again treated to a trip to New York to open the NASDAQ. And the following day a member of each winning team appeared on CNBC’s “Squawk Box.” This pattern has continued over the past eight years, with Stetson’s teams adapting to both changes in the markets themselves as well as changes in the RISE competition rules. The competition has been opened up to separate out graduate and undergraduate programs and categories were added in fixed income and alternative investments. Our success has followed into the fixed income category as well, with first place finishes in four out of the five years the category has been in existence (2004, 2005, 2007, and 2008). There were also two other good years in between. In 2003, a Stetson team finished second in the equity growth category and was named a NYSE/CNBC “Top Ten” student managed fund, since we were one of the top ten schools in portfolio returns that year (growth was a tough class that year!). In 2006, we repeated as first place winners in the equity growth category with a 4.4 % risk adjusted return. This points out several things that are attractive to current and future SMIP’s. Competition formats like the RISE Symposium as well as others generate opportunities for students to not only compare themselves to their peers, but it gives them a chance to present their school to the broader external community. From a public relations and admissions standpoint, this kind of exposure is an invaluable tool. There are two other notable competitions that often involve SMIP’s. The Rotman Trading competition is held yearly and involves many top schools from the US and Canada. The CFA Society also sponsors a Global Valuation Competition that attracts top finance students from around the world. In 2008, the North American champion was from the University of New Brunswick in Canada. They ultimately placed second to Hong Kong Baptist University in the finals. For Stetson, this success had led to spots in several national, regional, and local publications. These include Mutual Funds magazine, Business Week online, the Wall Street Journal online, The Chronicle of Higher Education, The New Your Times, The Washington Post, The Hartford Courant, The Cleveland Plain Dealer, The Orlando Sentinel, The Daytona Beach News-Journal, and Central Florida Business, Florida Trend magazine, and the Volusia-Flagler Business Report. This has expanded our recruiting base as well as helping us to keep in contact with and solicit donations from alumni. SMIP’s seem to be a magnet for alumni giving, as they represent a very visible attachment to the university. Trading/Research Rooms Another highly visible sign of sophistication is the growth in “trading” or research rooms. Many schools are using donor or university funds to build or renovate space into laboratories that contain sophisticated hardware and software. These include professional trading room furniture, large computer screens, and electronic monitoring devices like tickers or data walls. In many of the facilities, glass windows or walls are installed so that tours or outside individuals can “look in” on the proceedings. Many programs utilize sophisticated software packages such as Baseline, Bloomberg, Reuters/Bridge and Morningstar in the assignments that students prepare for their classes. There are pros and cons to these facilities, however. On the plus side, some
  • schools are designing curricula to incorporate the facilities directly into their educational programs. Siam (2005) discusses in depth the curriculum that was set up at McMaster University in Canada to incorporate their facility. This can give students real world experience that cannot be duplicated without the facility. This does not come cheap, however. Costs can range from $100,000 up to over $1 million to construct and outfit a facility. Maintenance and technology upgrades are also important, as significant funds are necessary to keep the technology current. In the George Program, we have a small room with 14 workstations. The initial expense of construction, as part of a total reconstruction of our business school facility, was around $100,000. We expend over $100,000 yearly on software and support resources for the program, including the trading room. Recent upgrades to the computing facilities were over $21,000. Without a continuing endowment for support and upgrades, the technology can become obsolete rather quickly. That being said, the experience with the software and hardware does provide valuable skills that cannot be taught any other way. The facilities themselves are also visually stunning in their impacts on visitors and prospective students. A major provider of technology is Rise Display (www.risedisplay.com). On their current web site, they have seven pages of pictures of installations from schools around North America. This can give a brief idea of the visual impact such a room can have. Curriculum Innovations and Performance As the student fund movement has gained momentum, like most curricula is has begun to change and become more specialized. And as an experiential learning device, it has also changed to reflect the current state of the profession. The use of professional tools and trading rooms, as we have seen, has certainly made the learning environment more closely mirror the professional environment. We will briefly highlight some changes that have taken place in student funds as well as some interesting developments from the literature. In Mallett and Belcher (2007), we profiled three common structures for student funds. These were outside managers of university endowments, investment clubs, and private endowment/foundation managers. Within these broad categories, there are a number of curricular variations that exist. In the George Program, our model is somewhat unique in that we manage a dedicated endowment that exists solely to capitalize the student fund. It is virtually all undergraduates and has changed over time from a single semester course to a two semester course sequence. The students in the George Program earn six hour of academic credit for the two classes and are taught by a visiting professor whose salary is funded out of the George Institute. Many funds are organized in a similar manner, with student groups responsible for economic forecasts, sector or company analysis, and a board of trustees or investment committee that makes the final portfolio recommendations. An interesting example of the investment club model is the “Spiffy” Fund at the University of Maine. There, students from across the university can participate by following the fund rules for presentations. After the meetings, recommendations can be made from anyone who submitted an acceptable recommendation. The Spiffy fund is also somewhat unusual in that they employ derivative positions in their fund. Many universities frown on derivatives or short positions because of the downside risk to the endowment. Many schools have also begun to take socially responsible investing positions. Faith-based institutions like Villanova University and St. Mary’s University in Texas, as well as state institutions like the University of California at Berkeley have investment policies that
  • screen on the basis of socially responsible criteria (see “Colleges Use Students to Manage Endowments”, Chronicle of Higher Education, December 14, 2007). The Xavier University fund manages a part of the university’s bond fund using an enhanced indexing strategy (Johnson, 2006). The student recommendations in the fund are evaluated by both the faculty advisor and outside professionals. Peng, Dukes, and Bremer (2007) discuss a new type of fund created to fund new ventures. The University Venture Fund was formed by Brigham Young University, The University of Utah, Westminster College, and the Wharton School of Business. An interesting twist was that the fund would give preferential treatment to university alumni. Graduate-only programs are also becoming increasingly common. One such program was described in Moses and Singleton (2005). Their fund is structured along the lines of an investment company, with two Co-Managing Directors selected by the instructor. Students are divided up into teams which then report to Research Directors. The class approves the selections and then the Co-Managing Directors prepare a presentation which is presented to the class. After several iterations, the presentation is made to industry professionals and the instructor for final approval. This seems to be a popular structure that many programs use. An interesting variant of this team-oriented approach appeared in Dolan and Stevens (2006). In their program at the University of Richmond, the analysis of the background information for the student managed fund comes from two departments: economics and finance. Traditionally, most programs are administered in finance departments and many of the participants are finance students. In the Richmond program, top-down analysis is performed by two groups of students from the economics department: a Global-Macro Analysis Group and an Industry-Sector Analysis Group. These reports, which involve local professionals from the Federal Reserve Bank of Richmond, are then combined with the bottom-up analysis of students from the finance department to create recommendations that go to a Strategic Portfolio Committee. This team approach was accomplished without adding much in the way of resource costs and has broadened the appeal of the traditional SMIP to both new faculty as well as new students. Analysis of performance of SMIP’s is rather spotty at best. Most schools set some form of performance benchmark for the fund and then evaluate the students’ performance by that metric. In some programs, the amount of money provided to manage is a function of the performance relative to benchmark. One recent analysis of SMIP performance was done in Haddad and Redman (2006). They analyze three years of returns from schools in the Tennessee Valley Authority Investment Challenge Program. This program took funds from a decommissioning fund from the TVA’s nuclear power program and initially endowed 19 universities with $100,000 each to manage as outside managers for the TVA. The program was subsequently expanded to add 7 more schools and increase each fund to approximately $300,000 each. In the 1999-2002 sample period, thirteen schools had returns that were better than the S&P 500 Index, During short time horizons, the returns were worse than over longer intervals. This may have coincided with the incredible volatility in returns on a year-to year basis. The authors attribute this to the turnover in portfolios caused by frequent turnover in student managers. As is characteristic of many programs, the management team is shuffled on a semester to semester or year to year basis. This can make it hard to maintain any consistency in management style over time, and their study seems to confirm that in the TVA Challenge Schools. LESSONS GLEANED FROM EXPERIENCE
  • What lessons have we learned from almost three decades of experience? In Stetson’s case, one of the most important is the validation of Roland and Sarah George’s wisdom in insisting that we let professionals do the teaching. Little did they know that their gift would place them at the vanguard of an international educational movement that has gathered steam every decade since their original gift. We believe this has been the major factor contributing to the richness of our students’ educational experience, combined with the fiduciary responsibility of managing someone else’s money. As indicated earlier, we also rely on guest speakers who work in the investment field to supplement this applied education. These contacts not only enrich the learning experience, but also provide valuable career leads to our graduates. Another lesson learned (though earlier suspected) is that size matters: big endowments are better than small ones. While our program achieved remarkable success by investing its initial half-million dollar gift near the start of a great bull market, it wasn’t until the much larger bequest from Mrs. George’s will came along that we truly flourished. A third lesson gleaned from experience is that in order for such a program to prosper, the director must have significant course relief. Our experience, as borne out in conversations with other program directors, is that most deans do not realize (or are happy to overlook) the time drain of the details of running a successful student-managed investment fund. At the same time, meaningful release time will come only if one is willing to fight for it. Lesson number four is the importance of having the program’s particulars spelled out in proper legal documentation. This extends far beyond investment restrictions and staffing matters (including formal descriptions of both the director’s and visiting professor’s jobs) to clear understandings about how the program’s endowment fits into the rest of the university budget and for what purposes its monies may be spent. A fifth and final lesson is that it is often better to be lucky than good. At the risk of sounding glib, we have been blessed with more than our share of fortune in the past 28 years, starting with the time those other universities couldn’t be bothered with Roland George’s money, moving on to the launching of our program at the bottom of what would become a raging bull market, to finding Carter Randall living practically in our backyard, and to having Gerry Kennedy – at the time, a stranger to us – put so much careful thought and energy into his program proposals. Unfortunately, the suggestion to be lucky is the one over which one is bound to have the least control. That’s why they call it luck. But any good investor understands its place in the grand scheme of things – and knows enough to appreciate it when it decides to drop in. IX. REFERENCES Bear, F. T. & Boyd, G. M. 1984. An applied course in investment analysis and portfolio management. Journal of Financial Education, 13, 68-71. Dolan, Robert C. and Jerry L. Stevens. 2006. “The Top-Down Student Managed Investment Fund: An Integration of Experiential Learning in Economics and Finance”. Working Paper, Robins School of Business, University of Richmond. Haddad, Mahmoud and Arnold L. Redman. 2006. “Students as Fiduciaries: An Examination of the Performance of Student-Managed Portfolios”. Journal of the Academy of Business Education Vol. 7, Summer, 87-98. Jackson, K. L. & Nylen, D. W. 1981. The Roland George Investments Program Annual Report, 1980-81. DeLand, FL: Stetson University.
  • Jackson, K. L. & Nylen, D. W. 1982. The Roland George Investments Program Annual Report, 1981-82. DeLand, FL: Stetson University. Jackson, K. L. & Nylen, D. W. 1983. The Roland George Investments Program 1982-83 Annual Report. DeLand, FL: Stetson University. Johnson, Stafford and James Pawlukiewicz. “Xavier University Fixed Income Student Investment Fund”. Presentation for the 2006 Financial Education Association annual conference. Lopez-Rivera, Marisa. 2007. “Colleges Use Students To Manage Endowments”. Chronicle of Higher Education, December 17, 2007. Mallett, James E. 2001. Roland George Investments Program 2000-2001 Annual Report. DeLand, FL: Stetson University. Moses, Edward and J. Clay Singleton. 2005. “Teaching Portfolio Management with Real Dollar and Imaginary Portfolios: Our Experience and Class-Tested Exercises”. Advances in Financial Education Spring, 36-71. Neeley, Walter P. and Philip L. Cooley. 2004. “A Survey of Student-Managed Funds”. Advances in Financial Education Vol. 2, Spring, 1-9. Peng, Zhouming, William P. Dukes and Ronald Bremer. 2007. “Student-Managed Fund Survey: An Analysis of SMF’s Operations in 35 Universities in the U.S. Working paper, Texas Tech University Rawls School Of Business. Siam, John J. 2005. “University Trading Centres and Their Role in Business Education”. Journal of Financial Education, Winter, 1-29. Students Smash Funds: These college kids could teach the pros a thing or two about investing. (2001, July). Mutual Funds. 7(9), 22.