Booth’s Student Managed Investment Fund to Contribute Almost 120K to Scholarships

 By Bolu Ajayi, Class of 2018

By Bolu Ajayi, Class of 2018

Every year, a handful of students at Booth are fortunate enough to receive scholarships from the school to cover the ever-increasing cost of tuition and fees. Most students, including those scholarship recipients, are unaware that a portion of the scholarships paid out annually is funded by returns generated by the Student Managed Investment Fund (SMIF). For the 2018-19 academic year, the SMIF will contribute just shy of $120,000—the highest payout ever from the SMIF—to fund scholarships for first-year and returning students.

In early 2006, the SMIF was seeded with $1 Million from the University endowment through a joint effort between the Investment Management Group, faculty members and school administration. Per the SMIF’s charter, the objective of the fund is to provide participating Booth students the opportunity to gain valuable hands-on experience in security research, valuation of risky assets, asset allocation, and portfolio management. The fund’s mandate is to invest solely in U.S. listed equities, without the use of margin or any other leverage-inducing instruments.

The SMIF is run by 6 – 8 second-year portfolio managers (PMs) who are supported by about 20 first-year analysts. The SMIF typically holds weekly one-hour meetings during which analysts present their stock pitches, which are then followed by a debate on the merits of the thesis presented. PMs make final buy/sell decisions on all ideas through a majority vote. For analysts, especially career-switchers such as myself, the process of preparing and presenting pitches is the exact training needed to develop the skills necessary to secure analyst positions at Mutual Funds and Hedge Funds, thus fulfilling the main objective of the fund. A faculty member (currently Professor Phil Berger) provides regular oversight and is responsible for approving trades put forward by the PMs. An alumni advisory board meets once a year (in the spring) to review the activities of the group and to approve proposed amendments to the charter.

  The SMIF committee during a recent board meeting. The SMIF provides students with valuable experience managing investments, balancing risk and return, and trying to prove Professor Eugene Fama wrong by outperforming the market - all with scholarship money for their fellow Boothies on the line!

The SMIF committee during a recent board meeting. The SMIF provides students with valuable experience managing investments, balancing risk and return, and trying to prove Professor Eugene Fama wrong by outperforming the market - all with scholarship money for their fellow Boothies on the line!

The fund has grown considerably since it was founded, despite massive drawdowns during the financial crisis. As of April 30, 2018, the SMIF held about $2.3 Million of total assets, the result of lifetime annual average returns of 9.1% vs 8.5% for the benchmark—the Wilshire 5000. While this annualized alpha may not seem like much to some, it is important to know that the SMIF skews towards value stocks, and value has underperformed growth stocks for the better part of the past decade as near-zero interest rates have supported one of the longest risk-on markets ever experienced. Also, given the demands of a full-time MBA schedule, the fund skews more conservative, favoring “sleep well at night” stocks and shunning most high flying, volatile stocks. The SMIF currently owns 27 stocks; largest position is Laboratory Corporation of America Holdings.

To be clear, the SMIF is an actively managed fund, and thus does not subscribe to the Efficient Markets Hypothesis (semi-strong form) of Professor Eugene Fama. We believe that well-constructed portfolios can capture excess risk-adjusted returns through bottoms-up fundamental security analysis, individual stock selection, and industry/sector allocation.

The second-year PMs currently in charge of the fund are Bolu Ajayi, Brett Bateman, Mat Berns, Marty Boulanger, Michael Habib, Nina Xu, and Joe Maule (PT MBA).

Bolu Ajayi is a second-year with concentrations in finance and entrepreneurship. He intends to become an investment analyst after graduation.