Lance Young is not afraid to wield a sports metaphor when it’s warranted. And to describe the Foster School’s new MBA Investment Fund, his game of choice is baseball.
“It’s like AAA ball,” says the senior lecturer in finance who serves as faculty advisor for the nascent student-managed fund. “We play the game to the best of our ability the way it’s played by research and money management shops, applying all of the frameworks we learn here at Foster.”
That is to say, the school’s “minor league of investment management” is educational, but not academic. The fund is a serious venture led by portfolio managers and informed by research analysts, each following a disciplined and rigorous strategy.
And now, they have real money to invest.
That money originated with the Foster MBA Class of 2011 which dedicated its outgoing class gift toward creating a live investment fund for future students to manage as an indelible learning experience and a pipeline to the majors, so to speak.
“We wanted Foster to develop more opportunities for MBA students with an interest in finance, and also improve the competitive positioning of the school,” says ringleader Andrew Parcel (MBA 2011), now a vice president and private wealth advisor at Goldman Sachs. “This seemed like an obvious way to add a tool for recruiting students and improving the chances of finding work in the investment community.”
Under the guidance of Thomas Gilbert, assistant professor of finance, leaders of the MBA Finance Society began drawing up structure, policy and procedures for the fund. The subsequent MBA Classes of 2012 and 2014 dedicated all or parts of their graduation gifts to the initiative. Dean Jiambalvo added to the account.
And late last spring, well ahead of expectation, the fund reached its trigger point of $100,000. Go time.
With Gilbert away this year as a visiting professor at the University of British Columbia, Young stepped in. And Tristan Toomey stepped up.
Toomey, this year’s Finance Society president, recruited fellow second-year MBAs Aalok Shah, Brennen Ricks and Brett Schulte to serve with him as portfolio managers. They “hired” 13 first-year students as research analysts and commenced building a boutique investment fund from the ground up.
This has required discipline and patience. Before a cent of capital was invested, the team established a viable organizational and spent most of the academic year systematically populating a massive matrix of market data that will become a library for future MBA fund managers.
This analysis trickles down from economy to industry to firm. “In the next stage we’re looking at particular companies that present real alpha because they’re doing something innovative that can provide positive returns in the long term,” Toomey says.
Young adds that the experience has been a de facto capstone of the entire Foster MBA experience.
“If you want to find alpha, you have to understand a company’s business better than the rest of the market does,” he says. “That takes an analytical capability that comes from all the disciplines we teach at Foster. Every one of those checkmarks on the matrix is a framework applied.”
This year’s portfolio managers have made their first investments of the fund—now over $300,000—just weeks before they graduate. “We knew that building continuity was the most important thing this year,” Toomey says.
The legacy will be both a working fund and a class outside the classroom—to be passed like a torch to future Foster MBAs of the finance persuasion.
“If we had done this in a theoretical setting, we could never achieve this level of reality and practical learning,” says Toomey.
“But because we have real money and report to real ‘shareholders,’ ” Young adds, “we have to follow a rock-solid investment thesis that makes sense and has the Foster brand on every trade.”
Dan Poston, assistant dean for graduate programs, notes that the fund, from concept to execution, is an exemplary collaboration between former, current and future Foster MBAs.
“As a sustainable, practical piece of the Foster education,” he says, “the way the fund mimics reality in its design and its management is a beautiful thing.”
Maybe even a grand slam.