Colleges find portfolio managers in classrooms

updated 9:14 p.m. ET Nov. 16, 2004

NEW YORK - A growing number of colleges and universities find they don't have to go far to locate good investment managers for their endowment funds: Their students are handling some of the accounts.

At least 185 American colleges and universities have student portfolio managers who invest either portions of the universities' reserves or gift funds donated by alumni, said David A. Sauer, a professor of finance at the University of Dayton in Ohio. That's more than triple the 48 student portfolio programs that existed in 1995, he said.

Sauer, who runs Dayton's Davis Center for Portfolio Management, said both the universities and the students benefit.

"For the students, it's a unique experience," Sauer said. "There's nothing better than having students apply the techniques and the tools they learn about in the classroom to a real fund."

The payoff for the college or university can be solid earnings on their money. Sauer's portfolio students, who manage $3.4 million of Dayton's endowment, "have beat the Standard & Poor's 500 index by 2 percentage points, on average, per year," Sauer said.

For participating students like Tom Dharte, 22, of Clinton Township, Mich., the portfolio management center gives him a taste of what working in the financial world will be like.

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"When you walk into the center, there's always a buzz about what's going on in the markets," said Dharte, who is majoring in finance and accounting. "It's an exciting place to be. It makes you want to learn more about the markets."

Fellow student Laura Coffey, 21, a finance major from Centerville, Ohio, agrees.

"It's modeled after a Wall Street trading room," she said. "We're responsible for more than $3 million, and we take that responsibility very seriously."

In all the portfolio programs, the professors advising the students, and sometimes university trustees, have veto power over proposed investments. Most of the earnings are either turned over to the university or reinvested in the fund for management by succeeding classes.

But the students generally get to pull some of their profits out for things like class trips to Wall Street or to regional investment houses.

Craig Rennie, an assistant professor of finance with the Sam M. Walton College of Business at the University of Arkansas in Fayetteville, has students managing three special trust funds. The largest, created in 1971 by the Raymond Rebsamen Foundation, started at $100,000. Today it is valued at more than $1.16 million.

Both sides benefit
Some of the profits are used to fund up to eight scholarships a year for seniors working as interns at local brokerage and investment firms, he said.

Rennie said students interested in the portfolio class "have to apply for it, just like they're applying for a job ... and prove to me that they're eager and that they can work as part of a team."

The students who are selected to work on the main trust must get approval for their trades from Rennie and at least two of three faculty trustees. Often large sums are involved, he added.

"They made about $300,000 in trades in just the past two weeks," Rennie said.

His goal is to have the students run an operation as close as possible to a professional investment firm.

"We're taking the concepts the students have learned in theory and getting them to apply them in practice," Rennie said. "They're all things they'll use in careers as soon as they graduate."

Mary French, 22, of Conway, Ark., has found the portfolio program to be challenging.

“Doing the research, the nitty-gritty of the number crunching ... and incorporating the economics into the numbers, those are thing you just don't learn from a textbook.” — Mary French Finance student, University of Arkansas

"Doing the research, the nitty-gritty of the number crunching ... and incorporating the economics into the numbers, those are thing you just don't learn from a textbook," said French, who is majoring in finance.

There's a personal payoff, too, in looking for jobs, she adds.

"I've been on interviews, and I know that if I wasn't in the portfolio class, a lot of the questions they ask would be over my head," she said. "It really gives you confidence."

Mike Cooper, an associate professor of finance with the Krannert Graduate School of Management at Purdue University in West Lafayette, Ind., advises a club of master’s degree candidates who manage a special fund donated by a Purdue alumnus, businessman Richard Hansen.

"We divide the students into groups to look at different investment alternatives," Cooper said. "Sometimes we test strategic theories to see if they play out."

He said, for example, that the Purdue students have tried to take advantage of the "January effect," which is a jump in value at the start of the year in stocks that investors sold off as losers at the end of the previous year.

When one of the student groups is ready to make an investment proposal, it must make a presentation and persuade colleagues to vote for it. Cooper, like the faculty advisers of the other programs, always has the final say.

The success can be seen in the portfolio, which is part of the university's endowment. It has grown from $100,000 to $300,000 in the past four years, Cooper said. The students, he said, can take a "dividend" each year to underwrite travel to financial conferences.

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