Students Invest Millions, Get Manager Recruitment Edge

By Tim Sturrock August 11, 2014

Ivy League graduates may have a "brand-name" advantage over alumni from less-prestigious universities when they enter the asset management industry, but some schools have upped their standing in the eyes of asset managers by placing millions of dollars into the hands of students to invest.

The programs give students the experience of vetting, analyzing and monitoring securities, pitching them to investment committees and watching their decisions sink or swim in the market. And it can give hiring managers a better sense of a candidate’s commitment and suitability for the profession. Student-managed funds, which handle a wide range of assets – from more than $1 million in some cases to as much as $50 million – are designed to give students the experience to land jobs at managers like J.P. Morgan Asset Management and BlackRock.

"It allows students to build that skillset in a hands-on manner. [They] climb the steepest part of the learning curve; hit the ground running, and help that firm feel good about investment that they are making and the hires from our school," says Brian Hellmer, director of the Hawk Center for Applied Security Analysis (ASAP) at the University of Wisconsin. ASAP accepts at least 12 MBA students per year and manages $50 million in an $8 million equity fund owned by ASAP and a $42 million fixed income fund managed on behalf of the university system’s pension.

Over the last ten years, ASAP alums have snagged jobs at large firms like BlackRock, Putnam Investments and Wellington Management as well as smaller firms like BMO Global Asset Management and institutions like the Colorado Public Employees Retirement System and the State of Wisconsin Investment Board.

There are more than 300 student portfolios in the U.S. overseeing more than $400 million in assets as of 2012, according to a study from Boston University.

Some of the larger funds exist in the Big Ten conference. The University of Minnesota’s Carlson Enterprise Funds manages $38 million in fixed income and equities. Ohio State University’s Student Investment Management fund manages $10 million.

Elsewhere, the University of Dayton’s Davis Center for Portfolio Management manages more than $18 million.

But, whether a university has a student-managed fund or not, Ivy leaguers still have an edge, according to statistics from eVestment.

In fact, University of Pennsylvania, Harvard University and Columbia University have produced more investment managers than any other schools in the U.S. Penn ranks above Harvard and unlike Harvard, it has a program – with $1.8 million under management – that allows students to invest endowment funds.

But schools like Harvard don’t have to offer the programs to compete as other schools do, says Michael Kennedy, senior client partner at the search firm Korn Ferry.

Firms pursue Ivy League students whether or not they have experience.

"Their view is that they can take those students and teach them what they need to know," he says.

But experience at a good student-managed fund at a state school can make a difference to managers and help candidates in the interview process, he says.

"The student who goes through the program has an advantage because that’s what they have been doing for the last year," he says, adding that managing real money creates an experience much closer to working at a large firm. "If you have money at risk, that’s something that you check on a daily basis because you’re following and researching them more closely."

Not only do student-managed funds create good candidates, he adds, but some of brightest students decline to go to Ivy League schools because they can get good experience at student managed funds at smaller-name state schools.

But with 300-plus student investment programs around the country, the extent of the benefit they provide can vary.

The quality of the program, rather than the size of the fund makes the biggest difference, says Hellmer, adding that programs that give more responsibility and resources to students generally have more impact than semester-long classes where the professor makes the final call.

"What makes the experience so real world and valuable is that there is no safety net," he says of ASAP. "I’m not telling students what to do. I’m helping them understand the ramifications of what they have chosen to do," he says.

When Morgan Metz was accepted to the University of Dayton’s program which manages more than $18 million in endowment funds, it took some time to adjust mentally to the responsibility, says Metz, now an associate portfolio manager at J.P. Morgan Asset Management.

"At that point in time it seemed like such a large amount of money," she says.

She attributes her hiring to her experience at the Davis Center something that the J.P. Morgan asked about frequently in her interviews in 2011. And she was able to provide concrete answers based on experience, she says.

"They very much focused on how my experience formed a conviction that I wanted to be an investor," she says, adding that they asked "Did I like researching a company? Did I like researching an investment thesis?"

And some program-participants have reached higher echelons of investment management.

Tom Madsen, the former global head of equities for UBS and a board member of Martin Currie, attributes his start in investment management in 1979 to his work at ASAP in Wisconsin. At the time, large investment managers rarely hired outside of the Ivy League.

At the age of 22, J.P. Morgan had four senior portfolio managers interview him at once, and he spent an hour explaining why ASAP invested the way it did, and he even tipped them off to Mylan Labs, a stock they were unaware of at the time.

"It was everything," he says of the program. "I’m convinced that’s how I got the job."