MBA students: Head of the (asset) class

A growing number of MBA programs are putting their students in charge of investing real money, and lots of it.

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cademia can be filled with hypotheticals and theoreticals. To make it real, just add money. A growing number of Canadian business schools are implementing investing programs that buy and sell with real dollars, blurring—or eliminating— the divide between campus and Bay Street.

McGill’s Desautels School of Management was one of the first. More than 20 years ago, donors helped establish an applied investments course, which has a mix of undergraduate and MBA finance students managing what has grown to become a $3-million fund. Each year, a new crop of students is divided into groups, and each is made responsible for managing a $250,000 chunk of the fund’s assets under management.

Many North American business schools have student-managed funds mandated to invest a portion of the school’s endowment. Desautels is one of the few with an incorporated investment company authorized to attract outside money. Desautels Capital Management accepts external clients—and charges them for the privilege.

A small group of students is selected to staff the company, just as in any private firm. There are analysts who hunt for stocks and bonds to invest in, strategists making investment decisions, risk managers and macro analysts studying economic conditions.

“Truth is, the best thing I can do is stay out of their way,” says Ken Lester, a McGill investing professor who serves as the fund’s CEO. “I want them to try out their own ideas.” The program came into being in 2010 while the trauma of the financial crisis was still fresh. The inaugural cohort was in no rush to plow all of their available funds into uncertain and volatile markets. “We did not feel pressure to instantaneously deploy our cash,” says John Tarraf, a recent McGill MBA graduate. “We took our time to look for good ideas.” Even with large cash holdings, the students have managed to match index fund performance since inception, Lester says.

MBA students at several other universities, including Brock, UBC, Concordia and the University of New Brunswick, are also guiding real money through various markets. Queen’s School of Business is so far the only one to get into hedge funds with the Queen’s University Alternative Assets Fund.

There, students are consulting with industry professionals to help them define the fund’s investing horizon, risk and volatility limitations, return targets and performance measurement. Building a new fund from scratch will give them an early advantage when they graduate, says Saumil Desai, the fund’s CIO. “It creates a bank of human capital that will be ready to be deployed into that space.” It’s producing financial as well as pedagogical dividends, adds fund CEO Clarissa Leung: “It’s been holding value a lot better than a lot of securities on the market.” Bay Street traders: watch your back.