Trade school Featured

8:00pm EDT September 25, 2007

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 stefano_mazzotta@kennesaw.edu.