Training Student Equity Analysts and Utilizing Their Recommendations in Active Portfolio Management

Abstract

Student investment funds are currently in operation globally at many large business schools and even small liberal arts colleges. Their management follows a wide variety of processes, from unsupervised to highly professional. While all investment managers labor to deliver alpha in a diversified portfolio, there are additional challenges to implementing a fully professional approach within a university setting, the largest being the constraint on time due to the school curriculum. This paper explores whether it is realistic to expect value-added from student analysts, and what training and infrastructure are required to increase the odds of successful active portfolio management inside an educational institution. The key goal of a student fund is education, not investment performance, but the more professional the investment operation, the more enlightened will be its graduates. A case study of one ten-year-old student fund illustrates a unique approach which seeks to successfully address these challenges. The fund’s management is formally integrated within a graduate finance program and has generated over 200 basis points of alpha per annum.