College students today have more opportunities to gain real investing experience. Many top universities now offer access to student-run investment funds, allowing students to manage real money and put classroom theories into practice. While these funds started small, some have now grown to manage millions in assets.
An Introduction to Student-Run Investment Funds
Student investment funds are typically associated with business schools or finance programs at colleges and universities. They provide a way for students interested in investing and asset management to get hands-on experience in:
- Researching and analyzing stocks
- Constructing investment portfolios
- Making buy/sell decisions
- Tracking performance
- Reporting to stakeholders
Professors and professionals advise these funds but allow students to lead investment decisions. The first student-run investment fund was founded at MIT in the 1950s, but the model has expanded significantly since then.
Participating in one of these funds allows students to boost their investing skillset and differentiate themselves when applying for finance jobs or graduate programs after graduation.
Major Goals of Student Investment Funds
While each student fund has its own specific objectives, most share a few common goals:
- Gain practical experience. The primary purpose is to move beyond textbook concepts and work with real market dynamics. Students get exposure to activities like equity research, portfolio allocation, risk management, and presenting to company executives and board members.
- Outperform benchmarks. Student funds usually aim to beat the returns of standard market indexes like the S&P 500. This requires sharp analysis and wise decision-making.
- Showcase stock-picking ability. Fund participants want to prove they can identify promising stocks and profit from their investment choices. Picking winners earns bragging rights.
- Network with professionals. Groups often connect with alumni in investing roles who can provide mentoring and career advice. Interacting with these professionals creates valuable networking opportunities.
- Contribute to scholarships. Many funds donate a portion of returns to provide scholarships for future business students. Giving back incentivizes participants to maximize gains.
Largest and Most Successful Student Investment Funds
While student-run investment funds have increased, several stand out for their size and savvy management. Here are some of the most prominent groups:
Michigan Student Portfolio Investment Fund
With over $25 million in assets under management, this fund based at the University of Michigan Ross School of Business counts as one of the largest student-run funds in the world. More than 300 students actively manage the fund across multiple industry-focused sub-portfolios. The fund consistently outperforms the S&P 500 and uses profits to award scholarships.
Darden Capital Management at UVA
The graduate students in this fund at the University of Virginia Darden School of Business oversee $12 million allocated across three strategies – long-only equities, long/short equities, and fixed income. The fund has averaged annual returns of 8.5% since inception in the mid-1990s. Participants focus on identifying undervalued stocks using rigorous discounted cash flow analysis.
Princeton Student Managed Investment Fund
With origins dating back to 1993, Princeton undergraduates in this $9 million fund implement top-down sector allocation and bottom-up security selection to assemble portfolios. Students concentrate on risk management and hedging against downside moves. The group brought in positive returns even during the 2008 financial crisis.
Berkeley Fund at UC Berkeley
This entirely student-run fund manages $4 million across domestic stocks and fixed-income securities. The group focuses on factor-based and quantitative investing strategies. It also incorporates ESG principles into the investment process. The fund has generated annual returns well above 10% over the past decade.
Bulldog Investment Group at Yale
One of the older student funds founded in 1967, this group from Yale School of Management deploys different strategies ranging from venture capital to leveraged buyouts. The fund manages separate portfolios for the graduate school and the Yale College undergraduate program that combine for over $10 million.
Typical Organizational Structure
While the size and scope of student-run investment funds vary, the overall organizational blueprint shares some common elements:
- Portfolio managers – A small team of students who meet regularly and drive major portfolio decisions like asset allocation, sector weighting, and security selection. They analyze investment research and proposals from analysts.
- Research analysts – Larger teams of students assigned to cover specific sectors, industries, or asset classes. They build financial models, forecast trends, and pitch stock ideas.
- Associates – Support staff who assist with administrative tasks, event planning, marketing, and other needs outside of investment analysis and decisions.
- Advisory board – Faculty advisors and investment professionals who provide guidance but let students make the final investment calls. They ensure best practices are followed.
- Investment committee – A panel that oversees the fund, sets policies, reviews performance, and approves major portfolio changes. This provides accountability and keeps the students in check.
Typical Activities and Responsibilities
Students who participate in these investment funds get exposed to many activities that mimic those at professional asset management firms:
- Researching companies – This involves analyzing financial statements, building valuation models, assessing competitive dynamics, and developing price targets for stocks.
- Writing research reports – Analysts publish in-depth reports on companies recommending buy/sell ratings and articulating the underlying investment thesis.
- Presenting ideas – Students pitch their best investment ideas to portfolio managers and the group during meetings. This advocates for their stock picks.
- Making investment decisions – Portfolio managers decide which stocks to purchase or sell based on analyst recommendations and their macroeconomic views.
- Tracking positions – Fund participants monitor open positions, stay on top of relevant news, and re-evaluate as new data emerges.
- Reporting performance – Groups analyze periodic returns relative to benchmarks and communicate results to stakeholders like the advisory board.
Key Skills Developed
The hands-on nature of these student investment funds provides an array of benefits beyond just stock picking. Participants develop expertise in areas like:
- Financial modeling – Building discounted cash flow and comparative analysis models to value companies and stocks.
- Valuation techniques – Using EBITDA, P/E, P/B, and other metrics to evaluate and compare investment opportunities.
- Portfolio optimization – Allocating capital across asset classes and individual holdings to maximize risk-adjusted returns.
- Investment analysis – Researching markets and securities to make prudent investment decisions and generate alpha.
- Public speaking – Presenting investment rationales, fielding questions, and defending recommendations to audiences.
- Team collaboration – Working together on cross-functional teams to execute investment strategies.
- Time management – Handling multiple responsibilities and completing tasks efficiently under pressure.
- Leadership skills – Directing teams and initiatives to accomplish group objectives.
These real-world competencies give students a significant edge when entering the asset management and investment banking fields after graduation.
Trends and Best Practices
Student-run funds have evolved considerably over the years. Here are some notable trends and best practices that have emerged:
- Specialization – Many funds now have specific sector-focused or strategy-focused sub-portfolios that allow for deeper research and insight. Popular areas include technology, healthcare, and sustainable investing.
- Shorting and leverage – More funds are expanding into short positions, options, and other derivatives to pursue alpha and manage risk beyond just long stock holdings.
- Quantitative approaches – Groups are utilizing more algorithmic trading, backtesting models, and data analytics to complement fundamental stock picking.
- ESG incorporation – Consideration of environmental, social, and governance factors is becoming standard across funds rather than an exception.
- Alumni engagement – Successful funds are developing alumni networks and partnerships with graduates working in investing roles to enhance mentoring and career development.
- Younger participants – Funds are recruiting underclassmen to allow for skill-building over multiple years of involvement and leadership continuity.
Student-run investment funds have grown from modest beginnings into multi-million dollar operations that deliver real investment management experience. For students interested in the asset management industry, participating in a school fund can provide a major edge by developing hard and soft skills in a hands-on environment. As these funds continue to expand and refine their approaches, they serve as a valuable pipeline helping to train the next generation of investing talent.