Booth’s Million Dollar Student Managed Investment Fund Clocks Above Average Returns.

By: Nish Damodara ’15 & Matt Thorne ‘15

During the ‘Welcome Back’ lunch for second-year students, Dean Kole remarked that the school had made over $700,000 worth of student scholarship awards for the 2014-15 academic year. A subsequent comment that may not have stuck with the audience that day was that Booth’s own Student Managed Investment Fund (“SMIF”) had contributed over $110,000 of that total scholarship pool. To answer the question on many students’ minds since that lunch (or at least since reading the prior sentences), we thought it might be a good time to provide a brief introduction to SMIF.

What is this awkward-sounding acronym, SMIF, all about?  SMIF was established in early 2006 through a collaborative effort between the Investment Management Group, several faculty members and the school’s leaders in order to provide a unique opportunity for Booth students focusing their careers on investment management.

Ok, so how large is this fund?  The fund was provided with an initial commitment of $1 million that has since grown through above benchmark investment returns, allowing for total scholarship distributions of over $0.25 million. For those counting at home, SMIF’s annualized return since inception has been ~7.3% compared to a ~5.5% return of the fund’s benchmark (Wilshire 5000 Composite Index).

And who exactly is in charge of this?  Since establishment, the fund has been managed by a group of 6-8 second-year students who act as portfolio managers and work with 14-18 first-year students (including part-time students) who are analysts for the fund. A faculty member (currently Professor Phil Berger) provides regular oversight of the group’s activities, including final approval of stock selections and trades. Further, an Alumni Advisory Board meets once a year to review the annual activities of the group.

What does SMIF invest in? The fund is mandated to invest in equities that are publicly traded in the US. Derivatives, leverage and short-selling are prohibited.

Why was SMIF setup?  The ongoing objectives of the fund are:

  1. Experiential education: SMIF aims to provide Booth students with the experience of managing a meaningful investment portfolio firsthand. At weekly meetings, all participants are involved in: monitoring the stocks presently in the portfolio and financial markets in general; researching potential new investments; pitching new stock ideas or recommending selling current positions; thoroughly questioning the investment thesis and analysis of recommendations in order to make the most fully informed decisions possible; and, regular portfolio monitoring and administrative tasks.

  1. Performance: The group’s portfolio managers and analysts seek to achieve superior performance through rigorous research and analysis of new ideas, close monitoring of existing positions and a continuous focus on risk management.

  1. Scholarship funding: SMIF provides annual scholarship funding to the school with the potential for greater contributions in the future as the fund continues to grow.

What about the efficient markets stuff? While Chicago Booth is appropriately synonymous with several unique firms in the investment management field that have developed from research associated with Professor Fama (DFA and AQR*) there are many other successful firms and investors with roots beginning in Hyde Park that have different philosophies – for instance, Howard Marks (founder of Oaktree Capital), Alec Litowitz (founder Magnetar Capital), Brian Taylor (founder Pine River Capital), Richard Elden (founder Grosvenor Capital and Lakeview Capital), Ed Jamieson (Franklin Templeton), Michael Larson (Cascade Investment), and LSV Asset Management, which developed from research in behavioral finance.

The existence of such successful firms and investors across a breadth approaches is a testament to the quality of education, faculty and opportunities provided at Booth and the freedom of idea expression at the university.

Those of us presently involved with SMIF have witnessed firsthand how the experience has benefitted those previously involved and believe it will continue to improve each year, ideally with continually strong distributions towards scholarships for other classmates.

SMIF’s current 2nd year portfolio managers are Nish Damodara, Mac Elatab, Mike Heenan, Alex Rothmeier, Prachi Shah, Guy Tartakovsky, Matt Thorne and Alex Zhao (PT MBA).

We would like to welcome the new group of recently selected 1st year analysts and look forward to working with them to continue the successes that SMIF has experienced thus far.

The fund’s website is www.chicagoboothsmif.com

* AQR has a great research paper on their website that dissects Warren Buffett’s returns, interesting read for those curious