Last year, Kellogg second-year finance student Stephen Carlson was an intern.
This year, he is responsible for helping invest $3 million of Kellogg’s money.
“It’s more exciting, but more stressful at the same time,” Carlson said. “You don’t want to see it go down.”
Since last spring, Carlson and more than 30 other Kellogg students have been meeting every Monday evening to manage roughly $3 million of their school’s money in a class called the Asset Management Practicum. In that time frame, the money they have managed has had a return of 5.3 percent, providing nearly double the S&P 500’s return of 2.8 percent for that period.
The founder of the program, finance professor Robert Korajczyk, said he had been inspired by similar programs at other universities. The Universities of Texas and Pennsylvania have comparable opportunities.
But the ability to pull it off was dependent on obtaining enough funds for the class to manage. The only money available to Korajczyk when he started was $350,000, which was the end result of an investment club started with a donation from the Crown family in the 1960s.
“Their part of the portfolio was folded into the practicum,” Korajczyk said. “The rest was raised over the last couple of years and we’re just under $3 million now.”
The money raised was divided by donor into the Kemney Fund, the Crown Fund, the Nash Fund and the commingled fund, which is comprised of smaller donations from many different sources. Students were selected for the class by an application through Kellogg. .
Korajczyk said while students had the ability to make some decisions without consulting the professor or the entire class, they still had to come to a decision collectively on whether they should buy or sell an individual stock rather than investing in a fund, usually seen as a safer choice.
“If a person wants to take a position on an individual stock, there has to be a presentation on that individual stock to the entire class,” Korajczyk said. “Then they can make a decision.”
One of Carlson’s positions was a short – essentially betting that the price will fall – on a company called Superior Industries International (NYSE: SUP), which proceeded to fall from $23 per share to $18 per share over the next three months. Their investment netted a return of more than 20 percent.
“We made a little money on that,” Carlson said. “They’re an auto supplier and they’re getting soaked by Chinese competition.”
Of course, not all of these picks worked out so well. Second-year Kellogg student Charles Lalanne pointed to the case of a long purchase of Portfolio Recovery Associates (NYSE: PRAA), a debt purchasing firm, as an example of a mistake the class made.
“They’ve been hammered along with all financial stocks,” Lalanne said. “We’re still holding it, but haven’t increased our position. The guy who recommended the stock in the first place recommended buying more, but we’re hesitant about that. Perception really is everything.”
Korajczyk said his primary focus for the future will be to raise a greater amount of funds for the class to manage in order to give students a more diverse array of investment choices.
“As we continue to raise more money, we can continue to go into a greater number of asset classes,” Korajczyk said. “In the long run, the way to expand it is to add tracks. We could have an equity track and a fixed income track and a real estate track.”
As for Carlson and Lalanne, both say they want to work in hedge funds.
Lalanne, who is planning on starting his own hedge fund, said the experience will be valuable in getting investors to trust him.
“They told me all the same thing, ‘We like you, but we can’t invest in you because you have no track record,'” Lalanne said. “I think now they’ll be interested.”
Reach Michael Gsovski at [email protected].
