Endowment Turns to Student Management

Terry Flanagan

Northwestern University’s Kellogg School of Business aims to keep the investment decisions in-house.

According to its 2011 business school rankings report, Northwestern University’s Kellogg School of Business was ranked fifth by U.S. News. For students, the school’s asset management practicum is a big draw.

The program is a course that was established in spring of 2007, and enables Kellogg students to manage a four million portfolio on behalf of the school’s endowment, under the guidance of faculty. While such a program is not entirely unheard of at other undergraduate and graduate business schools, none of Kellogg’s direct peers are actively pursuing a student-led asset management initiative, according to Kellogg school Professor Robert Korajczyk.

“The students are involved with every aspect of portfolio management while they are managing the portfolio for three to four quarters,” Korajczyk said. “Their main job for three quarter is to be equity analyst by providing and updating analyses, managing risk, and pitching new stock positions to the actual portfolio managers of the fund. They then spend one quarter actually executing the trades.”

As expected, the Kellogg alumni are primarily responsible for donating funds to the endowment, and have full understanding of “where the money is going,” and thus, the risks. Despite being under the wing of faculty, the highly coveted course is taken by the schools’ best and brightest. Upon graduating from the course, students are hired by many of the world’s top asset managers; from Middle East Sovereign Wealth Funds, to bond giant Pimco (Pacific Investment Management Company), to the firm’s prime broker, Goldman Sachs.

“The program has been very successful; there are pockets of students that find this program very appealing and their career placements are very good,” Korajczyk told Markets Media. “The program also attracts students to Kellogg.”

Of course, despite its hands on nature, there are limitations to the program. The students are only permitted to manage the equity portion of the endowment portfolio, which covers long and short trades of publicly traded companies. While endowments are typically well-immersed with alternative investment vehicles, the lack of liquidity poses a challenge for this program. For now, the program is best kept within the Kellogg community.

“Ultimately, the Kellogg endowment is only a small fraction of the entire university’s four billion endowment…if the students were managing much more, some alumni would be justifiably concerned,” noted Korajczyk.

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