When recruiters hit the college circuit
in search of America’s most talented graduates, applicants with previous and targeted business experience certainly stand out on their radar.
Enter the development of student managed investment funds, or SMIFs, to help
future job seekers better connect business
theory with real world practice.
Through SMIFs, “students have the
opportunity to apply the theoretical paradigms acquired through their business curricula to the merciless reality of financial
markets,” says Dr. Stefano Mazzotta, assistant professor of finance, Kennesaw State
University, and faculty mentor for the
SMIF. “The skills they develop working for
the SMIF will contribute to defining the
future leaders of society and are particularly attractive to potential employers.”
Smart Business recently spoke with
Mazzotta about how participation in the
SMIF is allowing students to more quickly
integrate their skills and education with the
needs of today’s companies.
How are schools adapting to more closely
match real-world demands?
I think from the companies’ perspectives,
training is a huge issue. Firms want people
that can function in a relatively short
amount of time in whatever role they have
to take. So, schools need to provide not
only a solid education based on life-long,
lasting core skills, but also a preparation so
that students entering the job market will
need relatively shorter training. This is
challenging for schools. Real world activities like student managed investment
funds are helping to bridge this gap.
What are SMIFs?
Student managed investment funds are a
broad type of initiative that provides individuals with experience that they can
promptly use and the ability to deal with
difficult and technical material. At the
same time, these programs promote learning from the humanistic level, including
interacting with and leading other people.
The students here at Kennesaw are building the fund as a start-up venture — an
actual LLC — with real money to be invested, and the need for management. The
Henssler Financial Group donated the seed
capital, and we look forward to expanding the network of donors and investors.
That’s the beauty of this kind of project:
The largest part of the work for the students is to manage themselves and see
how their efforts directly determine the
growth of the fund.
How will the fund operate?
It will operate like any other investment
fund, but students will research companies
and industries, write reports and then manage and invest the money. To purchase or
sell a stock, students will make a sales
pitch to their student body, which will vote
for the purchase or sale of a security, at a
certain price, in a certain timeline. As the
adviser, I will review their motivation and,
if it’s sensible and they have done diligent
research, I will endorse the transaction. At
that point, the investment advisory board,
comprised of faculty and members of the
business community, will have the opportunity to review the proposed transaction.
If no objection is raised, then the trade is
executed. However, the investment advisory board and I have an oversight function.
We’re more like a safety net. The students
should be free to make their own mistakes
and take credit for the good things they do.
However, we think it would be unfair to let
them do this without the opportunity to
hear the opinions of more experienced
people.
What kind of training do the students
receive?
The experience is designed to provide the
maximum benefit to students who stay in
the fund for the last two years of college.
Some groups of students are trained in a
more quantitative fashion and look at different companies’ market data using state-of-the-art econometrics software and
financial economics models to design allocation strategies with an ex-ante superior
probability of beating the S&P 500 benchmark. Some other groups look at investment prospects more from a fundamental
angle, examining accounting data, strategy,
industry and management, and develop a
more traditional stock selection craftsman-ship. This dual approach and the interaction among groups help to broaden their
perspective.
How are students selected to participate?
It’s more natural for business students to
apply for these types of programs, but we
are expanding our horizons with respect to
any other student in the university with a
strong interest. What makes somebody a
successful investor sometimes is not only
the knowledge of investing, but also some
field-specific knowledge. The student managers also recruit their fellow students to
provide new resources for when others
graduate. They have to share their learning
and coach the next core group of students.
How is the business community responding
to the SMIF?
The SMIF experience makes these students a little bit special, and they get more
interest from employers. Even though we
are a nascent group, we have already had
very good responses from employers:
Firms such as Morgan Stanley and ING
have hired our undergraduates, and one of
our graduate students is working in New
York as a hedge fund auditor at Rothstein
Kass, a well-known accounting firm. We
are always seeking new collaboration with
businesses that might want to become
involved with the SMIF at different levels.
STEFANO MAZZOTTA, Ph.D., is an assistant professor of
finance in the Department of Economics, Finance and Quantitative
Analysis at Kennesaw State University. Reach him at (770) 423-6341 or [email protected].