Bearish Markets? Not for SIF
November 15, 2010
Arjun Kapur
CMCers may not realize that some of the money used to fund scholarships, speakers and campus services comes directly from profits made by students. The Student Investment Fund (SIF) was founded several years ago when an alumnus of the school donated $10,000. Initially, the fund started with 15-20 members. Today, the fund consists of 40 members and holds $170,000 worth of investments that students manage and develop into a hopefully profitable portfolio. The fund is seeking to manage a seven-digit number in the future. Major structural changes over the last year, especially in terms of aligning members, have been a result of such high targets and ambitious growth plans for the fund. Through these changes, the fund is presently up 5% in a market that is down 2%.
The fund is currently led by Chief Executive Officer(s) (always a senior) and a Chief Investment Officer (non-senior). The officers provide leadership and direction for the fund, but are from the only figures behind the groups work. "The structure of the fund has always remained the same but the fundamental flaw was in the lack of motivation it provided to its members and thus it failed in terms of coordination. Motivation has come about as we put the right people in the spots where they can exhibit their talents and work...[we] let them operate however they see fit in a set of bounds which we have created" says Ben Kraus '11, who shares the co-CEO position with Justin Eskind '11.
While still a club, the fund is technically managing a segment of the school's endowment, a considerable responsibility for a group of students. Through an increase in the delegation of responsibility, the fund seeks to maximize the talent amongst its members. Co-CEO Eskind states that maximization of talent will additionally occur due to the increase in the amount of responsibility as "we give 20% of the portfolio, i.e. $35,000, to a certain group which invests it in whichever way they want to."
This year the fund has been broken down into various asset classes (like a hedge fund) with the addition of a fixed income, currency and commodity components. The traditional long-only equity portfolio has been reorganized as well, and close to 70% of the fund was liquidated in mid-April. CMC SIF uniquely includes a risk management arm, largely a result of the recent financial crisis. "As risk management is becoming more of a focus on Wall Street, it is important for us to give our students an opportunity to grow in that area," said Co-CEO Kraus, "Students not only learn how to value a stock but they learn how to trade a commodity."
The SIF meets weekly to discuss global market and financial updates as well as analyzing investment pitches made by its members to the fund. Members vote within 24 hours of the investment pitch via an online system.
The group seeks to meet its seven-figure goal by raising capital from parents, alumni, and other donors. Members reach out to alumni using video conferencing during meetings in order to gain advice on certain markets and investment pitches. The fund also plans to participate in investment competitions at the college level and aims to help its members with internships through alumni networking. "Our aim is to make the most of the resources and knowledge seniors have and to pass it on to the younger students as real world application," says Eskind.
The management feels that through these changes and plans for this year the fund is moving in the right direction, but is still seeking to recruit the best and the brightest CMCers. "The success of the fund is due to hard work the members are putting in. The number of pitches in the last month and a half in conjunction with the indexing we have started doing is a huge step in right direction," says Kraus. "At the same time, I am not convinced that we have interest from all of the best talent at this school."
The SIF seeks to push Economics and Finance majors away from the banking industry and into the roles of asset managers, risk managers and stock pickers. According to the CEOs, the developed fund will also feature a more significant advisory role filled by CMC faculty and administration. Within the past year, SIF has grown from an antiquated fund to a diverse group, with structure typical of big time funds - the first significant step towards becoming one of the premier student run funds in the country.