At the University of Virginia’s Darden School of Business, $10 million of the school’s endowment is not managed by investment firms, faculty or administrators. It is managed by MBA students.
The student-run Darden Capital Management club makes all investing decisions for five funds with assets totaling more than $10 million. Students research and pitch stocks to second-year MBA portfolio managers who determine which to buy and sell. In total, each student team, consisting of one senior portfolio manager and three portfolio managers, is responsible for about $2 million of the school’s endowment.
Many other business schools have capital management clubs, but the vast majority do not grant students the type of investment decision-making autonomy granted by Darden Capital Management, said Associate Professor of Business Administration Richard Evans, the faculty adviser for Darden Capital Management. While other clubs require faculty approval for stock purchases, Evans does not have authority over purchasing decisions – and does not want to.
“We want this to be entirely student-run,” Evans said. “I think it has been a very good investment for the school. Pedagogically, it is a superb program and in terms of the $10 million, the students have done a great job.”
Over the past 10 years, Darden Capital Management has outperformed each fund’s benchmarks by about 2 percent each year. Academic research suggests that most mutual fund managers, on average, underperform their benchmarks substantially, according to Evans.
“I’m not surprised by their performance,” Evans said. “It’s a labor of love and they are really passionate about it.”
“Having the opportunity to invest the [Darden] endowment and grow it is one of a kind,” said second-year Darden student Marci Stewart, chief operations officer of Darden Capital Management. “Everyone in Darden Capital Management really cares about their decisions and thinks through what is best for each fund.”
Stewart joined the club with an interest in investing, but little experience outside of her personal finances. Picking stocks and learning from classmates’ investing strategies helped her to secure an internship with Fidelity Investments this summer, she said.
Other club leaders report that the investing experience has given them an edge in the very competitive MBA recruiting process.
“These companies ask their analysts to make decisions on billions of dollars and it is very difficult to predict how someone is going to react with that amount of pressure on the line,” said Jake DuBois, the club’s chief executive officer. “Seeing Darden Capital Management on a student’s resume […] tells employers that this student has made decisions with real money, sometimes with hundreds of thousands or millions of dollars on the line. That experience is irreplaceable.”
James Franco, the club’s director of research, agrees. “When you begin interviewing with companies, you can talk about what has worked and has not worked on your stock pitches,” he said. “That is very valuable for credibility with investment professionals.”
Darden students join the club and begin evaluating stocks during their first year. Through a competitive application process, 24 students are selected to enroll in Evans’ second-year Darden Capital Management course, where they are evaluated for their investing performance. Twice a year, the group presents their investments to Darden’s Board of Trustees, who, Evans said, “grill the students” about investment decisions.
“It is a real honor to be able to manage such a significant amount of money on behalf of Darden and to have the confidence of the faculty and the Board of Trustees,” said Claire Lewis, the club’s chief investment officer. “Having full accountability for our mistakes and our successes really makes us better prepared for careers in investment management going forward.”
Darden is not alone in allowing students to manage capital. At the University of Virginia School of Law, members of the student-run Rivanna Investments have grown $100,000 in seed money to a $130,000 portfolio while earning investment experience valuable for future law careers.
Undergraduate students in the McIntire School of Commerce enjoy similarly realistic experiences through the student-run McIntire Investment Institute. Students manage a portfolio valued at approximately $670,000, grown from a $100,000 endowment established in 1994 by John Griffin, president of Blue Ridge Capital and a member of U.Va.’s Board of Visitors. As with Darden Capital Management, McIntire students research and execute all investments, with faculty serving in an advisory capacity.
Since its inception, the institute has donated $150,000 back to the school and pledged another $100,000 donation for the coming year. The money has been used for new technology, building renovations and other improvements.
Fourth-year student Kevin Wang, president of the institute, joined the organization as a first-year student to learn more about finance before applying to the Commerce School. The learning experience of managing so much capital at such a young age exceeded his expectations.
“Investing is just a way of thinking. It’s more an art than a science, and when intelligent students from diverse backgrounds share their investing ideas, it is startling how much you can learn,” Wang said.
For student investors at both Darden and the Commerce School, these investment clubs step outside the boundaries of academia, leaving behind simulations for real-time results.
“The portfolio doesn’t sleep while you are away for holiday break,” Evans said. “The stocks are still going up and down and it is still your responsibility.”
While they study and socialize, these students monitor the stock market with a careful eye, diligently looking out for the future of their school even as they absorb its present.