Business Students To Manage $10 Million Fund

In 1970, students at UW-Madison’s School of Business were among the first in the country to have the opportunity to manage “real-world” equity portfolios. Now UW–Madison students will be among the first to manage a substantial fixed income fund.

The UW Board of Regents has authorized students in the business school’s Applied Security Analysis Program to manage $10 million of the UW System’s $34 million Intermediate Fixed Income Fund. Of the UW System’s overall $280 million in trust funds, $34 million is in the intermediate fund; remaining resources are long-term investments.

According to Marcia Bromberg, vice president of business and finance for the UW System, the Board of Regents approved the students’ handling of a portion of the Intermediate Fixed Income Fund because of the unique nature of the program in the nation and its proven track record.

“The student management of these funds, under faculty supervision and with the interaction of professional investor alumni, will be reviewed and judged as are all our investment managers, to ensure they meet performance benchmarks,” Bromberg said. “But unlike other investment managers, the student program will not be paid for its services since it is an educational venture.”

The Applied Security Analysis Program at UW–Madison pioneered the concept of student management of investment funds. Starting with an initial gift of $100,000 in 1970, the program’s two equity oriented funds have grown to $1.5 million. Many business schools across the country have followed the Wisconsin model, offering students experience with applied investments.

“The Applied Security Analysis Program is well recognized as one of the top educational programs for investment analysis in the country, said Andrew J. Policano, dean of the School of Business. “For 27 years, the students have managed an equity portfolio and recently have run a pilot project on a fixed-income portfolio. The opportunity provided by the UW System to manage $10 million in fixed-income assets will be an excellent educational opportunity and also will generate competitive rates for the fund.”

The approximately six to 10-member team of students who will manage the UW System fund day- to-day will be supervised by Associate Professor Mark Fedenia, director of the Applied Security Analysis program, and by an advisory board of professional investment managers. Fedenia said the student-managed funds will adhere to performance standards and investment guidelines imposed on investment managers retained to manage other portions of the UW System’s portfolio. There will be no investment management fee paid to the business school, only reimbursement for incidental expenses, Fedenia said.

“With this initiative, we hope to break new ground and create the first student managed fund in the U.S. dedicated to the management of fixed-income securities,” Fedenia said. “Last year, we ran a pilot fixed- income group where five students actively managed the fixed-income portion of the program’s portfolio. It was a great success. For this market, $10 million is really the threshold level for meaningful training in fixed income management. With the level of capital provided by the UW System fund, the students will be able to participate more fully in the corporate bond market and mortgage-backed securities will become feasible investment vehicles. ”

According to Fedenia, students will manage the portfolio every day the market is open, implementing a fixed-income philosophy and strategy developed with the advisory board. Students will recommend purchases and sales of bonds based on strategies set by the program’s director and advisory board.

The members of the advisory board who will be assisting students with the UW System fund are: Stephen Hawk, chairman and chief executive officer of Northern Capital Management, Inc. of Madison; Scott Roberts, chief investment officer of Zurich Kemper Investments of Chicago; Jay Sekelsky, vice president/principal of Madison Investment Advisors, Inc. of Madison; Brad Tank, director of fixed income at Strong Capital Management, Inc. of Milwaukee; and Ray Zemon, executive vice president and managing director of Lincoln Capital Management of Chicago. All are alumni of the business school’s Applied Security Analysis Program.