Student-managed fund outperforms standard

Class that oversaw $1 million investment presenting results to University board of directors | April 18, 2005

Eight students who have been managing $1 million of the University’s endowment reported to the board of directors on the results on Thursday, April 21, at 11:00 a.m. in Schott Hall.

The board is made up of more than a dozen business leaders, including Lawrence Leser of E.W. Scripps, Kim Renners of the Ohio Casualty Group and J. Patrick Rogers of Gateway Investment Advisers. Three fixed-income portfolio managers from Fort Washington Investment Advisors served as fund advisors.

Students used an enhanced, bond-indexing approach in which the portfolio is indexed to the Lehman Government/Credit Index. This index consists of three sectors: treasury, federal agency and corporate.

“This has been an invaluable experience for our students,” says R. Staff Johnson, course professor and fund adviser. “For them, it was a marriage of academics and real-world marketable skills. They also established professional relationships.”

The students took charge of the fund last fall and used the Bloomberg Professional Service to analyze their choices. Bloomberg Professional Service is a real-world financial management tool used to track the fund. During the year, they made several strategic moves to increase yield and lower the sensitivity of the portfolio to lower interest rates.

The student managers, most of them senior finance majors in Xavier’s Williams College of Business, were split into two groups: an economic analysis group and a corporate analysis group. Each monitored and analyzed macroeconomic and financial market conditions, economic indicators, U.S. and world events, Federal Reserve auctions, Treasury activities and more to manage the fund.

Both groups provided weekly reports on not only the performance of the fund, but economic and financial market conditions, and projected values. Any action to buy or sell bonds to achieve the recommended targets required a two-thirds vote of the students, with the fund’s finance faculty advisor and two Fort Washington advisors having veto power over the students’ decision.

“The project has gone quite well,” says Jamie Pawlukiewicz, chair of the department of finance. “It was great to see the professional development of these students. In addition to learning how to manage the fund, they also learned how to prepare reports, make professional presentations and interact with the financial community.”

“It’s been great gaining both the academic and professional experience in fixed income investment,” says Paul Tomich, a senior finance major. “Perhaps the greatest benefit the project has given me is the networking opportunities with many professionals in the industry through our meetings with the advisory board and Xavier’s board of trustees.” Tomich graduates in May and will work at Fort Washington Investment as a portfolio analyst.

The students established an office on the first floor of Hailstones Hall, complete with a subscription to Bloomberg Professional Service. Many put in 20 hours a week or more towards the project. Applications are now being accepted for next year’s management team. Graduating seniors from this year’s team are serving as mentors for the new group.

“This group is the pioneer,” explains Johnson. “They even wrote a handbook on how to use the Bloomberg management tool for the next generation of students.”

In addition to learning how to manage the fund, the students got some expert advice from leading Wall Street advisers during a recent trip to New York City. They met with financial experts from Merrill Lynch and J.P. Morgan.