A new alliance with US Bancorp will bring Wall Street to the Carlson School of Management as finance majors run a $1 million mutual fund.
US Bancorp and the Carlson School officially announced a partnership Wednesday that gives masters students an opportunity to research and manage their own stock fund. US Bancorp put up $1 million to start the Golden Gopher Growth Fund, the Carlson School’s first major initiative in its Financial Community Partnership Program.
Acclimating students to the pressure and responsibility of professional asset management is one the project’s goals.
“If you give them artificial money,” said management professor Timothy Nantell. “They take chances that they wouldn’t take in the real world.”
By putting the weight of large amounts of money on students and applying the pressure to satisfy clients, the students start to take their work seriously, Nantell said.
The client in the venture is US Bancorp and like any relationship between an investor and an investment institution, the client is entitled to the fund’s returns. Unlike a typical mutual fund, everyday investors can’t purchase shares.
The performance of the Golden Gopher Growth fund will rest on the six Minnesota companies whose stocks were chosen to comprise it.
During the last four months, 21 MBA students selected the stocks. They sifted through hundreds of publicly owned businesses in search of those with the best potential return.
“What we did was choose seven industry groups where we thought there was a good concentration of small- and micro-cap companies,” said Katherine Donovan, a student who participated in the project. A small company is one with total stock valued at less than $1 billion.
Students then interviewed the managers from prospective companies, inquiring about their growth strategies and future plans.
After still more evaluations the students presented their six choices to a group of seven professional managers from Twin Cities firms for final approval.
The students settled on FSI International, ASV Inc., ATS Medical, Secure Computing, Urologix and Ciprico Systems as growth stocks in Minnesota.
Nationwide, the University is one of the first to introduce a student-run fund; the Wharton School of Business and University of Wisconsin-Madison have similar programs.
“This puts the Carlson school at the cutting edge,” said John Murphy, Jr., US Bancorp’s chief investment officer.
However, the number of students eligible to participate in the program is small. But more students are expected to be added as the curriculum and project details are fine-tuned. Department professors are also planning a Web site so more people can take part in the project and check up on the fund’s progress.
Positive returns aren’t guaranteed. Several students said successfully managing the fund is challenging, despite the high performance of U.S. markets and Minnesota businesses.
“More than anything right now we need to be conservative in our investments,” Donovan said. “We could be at the top of a large bull market that’s ready for a crash any day now. As students, that puts more pressure on us to pick the best companies with the best fundamentals and long-term growth prospects.”
Although all of those involved are hoping to create a profitable fund, the benefits of working on it aren’t always measured in dollars.
“The ultimate challenge here is that (the project) is something that really encourages us to make independent decisions,” said finance student Peter Erickson. “The independent decisions are based upon accountability. This is an investment by US Bancorp, so we’re making decisions that have a big impact. That’s where the value truly lies.”