Out Performing the Pros

Get the best and brightest MBA finance students together with the Twin Cities’ savviest and most experienced investors. Give the students a lot of influence over the outcome. Steer them to the wisdom of Warren Buffett and Benjamin Graham, the grandfather of value investing and Buffett’s mentor. Out of that mix comes Aristotle, the student-managed investment fund at the University of St. Thomas.

Since its inception a decade ago, the fund has produced an annual average return of 6.0 percent, versus 5.0 percent for its benchmark index, the Standard & Poor’s 400. In six of its nine years, Aristotle has outperformed that benchmark.

Now the fund’s alumni, knitted into an enduring network by Aristotle’s Mary Daugherty, the fund’s managing professor, are rising in careers as securities analysts and money managers at investment firms throughout the Twin Cities.

Real-World Management

Student-managed investment funds are in fashion. A 2007 study by University of Missouri–St. Louis Professor Edward Lawrence found that 289 of the nation’s business schools have such funds. Nearly half of them have been launched since 2000.

Sometimes, outside financial entities put up the money and maintain significant control over these funds. At St. Thomas, the school owns all of Aristotle’s assets and governs the fund. To start the fund, an anonymous donor gave the school the money, in the form of zero-coupon bonds (which do not pay periodic interest, or coupons). The bonds had been scheduled to mature in 2016 at a value of $5 million, but the school sold them over a period of years. After they were cashed in early, the fund received $1.7 million from the proceeds. It has invested that money in mid-capitalization stocks.

Aristotle has approximately $2.6 million invested today. It hopes successful stock picks will allow it to boost its assets to at least $5 million by 2016.

“We have a fiduciary responsibility to the university, and the students feel the heat,” Daugherty says.

“It’s the real world,” adds Rick Rinkoff, managing partner and director of research at Craig-Hallum, an investment firm in Minneapolis. Rinkoff was the first professional volunteer to sign on as a mentor to Aristotle’s students. Today, a dozen others have joined him. Daugherty looks for investment managers with more than 10 years of experience in a variety of investment styles and industry expertise. Most hold top positions at leading financial firms in the Twin Cities.