Last year, the Kellogg School of Management founded the Asset Management Practicum, giving 30 Kellogg students $3 million in alumni-donated funding to invest on its behalf.
One year and one global financial crisis later, the students in the program now manage about $2 million.
Second-year Kellogg student Matthew Zumbach said the past year was a good opportunity to get “real world experience.”
“Everything you learned in school was out the window for the past nine months,” he said.
Despite the volatile market, the program’s founder, Kellogg Prof. Robert Korajczyk, said his students had outperformed other financial managers in the last year. He pointed to data from the American Association of Individual Investors, which showed other small capitalization stock funds, like the practicum’s, lost an average of nearly 40 percent of their value. By contrast, the group’s losses to date only amount to approximately 33 percent.
Korajczyk said his students were limited by their relatively small amount of funds to manage, which precluded them from diversifying their holdings into bonds and other more stable instruments that require large amounts of capital to purchase.
The current state of the markets hurt efforts to find more funding, he said.
“A lot of people in the financial services industry have lost their jobs or are concerned that they might, so as you’d expect it’s not a great time for fundraising at this point,” Korajczyk said.
While hindered by the relative lack of funds, the student fund managers sought as much security as they could in cash, Zumbach said.
“Given our lack of experience and that we’re not involved on a daily basis, we took a step back,” he said. “When we get more comfortable and things calm down a little bit, we’ll get back in the market.”
The investment climate has made the stock of otherwise fundamentally sound companies producing goods such as fertilizer and water treatment chemicals lose value, students in the program said. Second-year Kellogg student Enzo D’Angelo said it was even difficult to predict which stocks would fall, citing a situation when the group “shorted,” or placed a bet the price of the asset would drop – the stock of Macy’s department store (NYSE: M), only to see its share price nearly double.
“It was pretty surprising to see a firm with a medium- to higher-end customer base not drop,” D’Angelo said. “The credit agencies downgraded it, but it still rebounded from its low.”
There was “a slight drop” in admissions to the program this year as Kellogg students confronted an uncertain future in finance, Korajczyk said.
“What we don’t have are people coming in to switch to asset management,” he said. “(To people already in the field), it’s less risky than switching to another career.”
Zumbach and D’Angelo both said they intended to find careers in asset management after graduation. D’Angelo said despite having seven years of experience in various roles in finance, and having to put in “three or four credits of work” for each academic credit, spending a year in the practicum was worth it.
“I’ve been involved in organizations but never had individual responsibility,” he said. “When you do something wrong or right, you learn from it.”
