GW will give two-dozen graduate students the opportunity to manage $1 million of its endowment starting in the fall.
Donald Lindsey, GW’s chief investment officer and a professional lecturer in finance, said the class for MBA students would be designed to give them real-world experience in investment management.
“I think it teaches them that it’s part science and part art,” Lindsey said. “It’s ideally suited for students who want to go into the investment management industry.”
The program is being bankrolled by a $1 million private gift to the University, Lindsey said. Officials have declined to release the name of the donor. Lindsey said he anticipates that the student-managed fund will grow as additional donations are solicited and added that the program seeks to enhance the marketability of business school graduates.
The class will not have access to the University’s regular endowment, which measured $773 million in December 2004. Endowment, which is mostly invested in financial markets, is comprised of gifts to the University made by individual donors, corporations and non-profits. While GW’s endowment has grown by nearly 16 percent in the last fiscal year, it is still low compared to the endowments of similar institutions.
Students in Lindsey’s current Applied Portfolio Management class are already conducting research on which investment options will be recommended to the students who will manage the endowment in the fall.
“The initial portfolio will be all stocks,” Lindsey said. “We don’t anticipate that the performance will be significantly higher or lower than the broad stock market.”
Lindsey anticipates that the fall class will have a cap of 25 M.B.A. students. He said there are plans to open the course to undergraduates but that the business school first wants to develop the program at the graduate level.
Students will monitor industry research, trade publications and Wall Street brokerage research in order to decide how to manage the endowment, Lindsey said. Although the students will be responsible for selecting investment options, the University will maintain oversight of the fund.
“They’ll have a lot of flexibility, but that flexibility will be within guidelines,” Executive Vice President and Treasurer Louis Katz said.
The program was proposed in discussions between the Board of Trustees and Susan Phillips, dean of the School of Business.
“I think it’s becoming fairly accepted practice among business schools,” Katz added.
The Ohio State University has sponsored a similar student investment management program since 1990. G. Andrew Karolyi, an OSU professor of finance, said his school’s program was proposed at a time when the endowment was enjoying “less than stellar performance.”
“Someone said, ‘Well, even our students could do a better job,'” Karolyi said. “But ultimately the educational value is what drove it.”
Between 120 to 130 students per year participate in the OSU program as part of a capstone course for senior finance majors, Karolyi said. The initial size of the investment was $5 million; returns and additional donations have increased its value to $19 million.