Few programs at the Sam M. Walton College of Business have the impact – or the history – of the Rebsamen Trust. The fund, which celebrates its fiftieth anniversary this year, is the third oldest of its kind in the nation. The fund, a student-managed, million-dollar investment fund, requires students to develop a wide variety of skills as they manage equity and fixed-income securities.
In “Rebsamen investment fund integration in finance education,” authors Samar Ashour, Craig G. Rennie, and Sergio Santamaria present their research into student-managed investment funds (SMIFs). The investment funds are usually tied to a business/finance course; however, SMIFs are not typical business college courses. SMIFs are not playing with pretend money. The Rebsamen fund at the University of Arkansas Sam Walton College of Business began with a $100,000 initial cash investment in 1971. With thousands of dollars at stake, universities want their best and the brightest to invest and manage these funds. The Sam Walton College of Business puts together a team that consists of the newest batch of experts and innovators: senior level finance majors. SMIFs give senior finance students practical experiences resembling what they will face in the private sector. It also gives students a chance to employ new, innovative finance strategies while being guided by seasoned financial investment experts. The results in the Rebsamen SMIF has not only been positive; returns have outpaced or kept pace with the top S&P 500 firms.
The Student-Managed Investment Fund Team
An SMIF is as complex as any private sector investment firm. SMIFs begin by nominating and selecting Portfolio Managers and Deputy Portfolio Managers. The team needs Fund Economists, usually economics majors whose regional expertise cover Asian, European, and U.S. markets. This is only the tip of the iceberg when it comes to SMIFs. They employ the same roles needed for Global Industry Classification Standards (GICS). Said standards would require a wide range of team members including everyone from Sector Analysts to IT and Telecommunications experts.
Industry leaders are then brought in to work with the students, bridging the gap between a capstone student project and investment firms that may be looking to hire these young go getters. SMIFs, then, don’t only provide students excellent career preparation; they also help them increase their professional network. This is also where the experiential learning factors involved with SMIFs are ramping up. Innovative students may be pushing to try out and test concepts they have been rolling around in their heads for a few years. Professors, industry leaders, and most importantly, student team leaders can temper that everything-at-once mentality. They can balance innovation with what the industry leaders are teaching them: consider all those practical things about Asian or European markets that are not going to be covered in any textbook! The purpose of the Rebsamen fund and others is to foster a better understanding of security portfolio management across a wide array of marketplaces.
While stretching their wings and learning to fly on their own, there are still limits put on the students involved. Students are only allowed to deal in interest bearing accounts, certain mutual funds, and government bonds, as well as a range of other legitimate investments. There are usually prohibitions against futures trading, venture capital investments, certain foreign markets, and more recently cryptocurrency. The cryptocurrency issue is particularly interesting: “crypto” is both a new technology as a blockchain model and a new theoretical approach to economics that many industry leaders are still trying to wrap their heads around. It may be one area where student innovation is outpacing current investment theory and strategy.
The Rebsamen SMIF’s objective very clear. The researchers state that the objective “is to generate higher total returns than those of the S&P 500 without taking on as much risk as the S&P 500.” The Rebsamen SMIF often beats the industry benchmarks. In fact, the Rebsamen SMIF has seen a steady increase in returns since 1996. The only time that the industry seems to outpace the Rebsamen SMIF is when returns are in the higher, 500-600% ranges. Even then, the SMIF is producing returns that at least keep pace with the latest financial boons.
SMIFs are no joke: they are the finance equivalence of getting into medical school. At the Sam Walton College of Business (WCOB), finance majors must take a wide breadth of coursework. Industry leaders’ biggest criticism was that finance students were not coming out of universities with enough accounting background. Sam Walton finance majors take 5 accounting course (15hrs) as part of their core requirements. Was your college experience anything like this? An SMIF student must meet sophomore and junior benchmarks, complete internships, juggle five concentration areas - banking, energy finance, financial management and investment, insurance, and real estate – and all of that accounting, and compete to get into a very prestigious project like the Rebsamen SMIF. Again, pretty much the finance undergraduate equivalent of getting into medical school.
SMIFs also foster a lot of growth within the university and department. The Rebsamen SMIF has attracted other companies to invest in similar SMIF models and/or funding: one funding source, the University of Arkansas Foundation Account, began with a $5 million investment. Considering the initial investment of $100k into the Rebsamen SMIF in 1971, the growth of so many SMIFs totaling millions of dollars adds to the prestige of an SMIF like the Rebsamen. Finance majors attend Walton because the college manages one of the most successful and competitive SMIFs in the country.
Implications for Managers
Every year thousands of finance majors pour out of universities all over the U.S. Many of them come from good programs and have top-notch internships. The latest generations of students coming out of these SMIFs, however, are also very tech savvy. SMIF team members also possess some of the most up-to-date investment theory and strategy, including how to structure their firm/team. On top of that, they are using the most up-to-date technologies to accomplish tasks that used to take an entire room full of analysts and miles of ticker tape to do. For example, Korea sees a 12-month turnover rate for buying new cellphones, as opposed to the 2-year rates of most countries. In a study of the Korean cellphone market by Jihuk Joo and Yoonmo Sang, the researchers cited that the fastest, most up-to-date financial apps drove the accelerated cellphone purchasing rate. Whether it is in Korean or American schools, younger generations bring knowledge of the newest or latest technology relevant to the investment world: a 2- year-old finance graduate likely knows more about phone apps than anyone at your firm!
Students who are involved in an SMIF program in school stand out as graduates. While most business-finance graduates will possess internships and real world experience, Rebsamen SMIF students have also competed at the highest levels of finance in academia, have worked hand-in-hand with academic and industry leaders, have taken several accounting courses, and have done everything else that goes with competing at the S&P 500 level and beating the benchmarks. It’s no wonder, then, that Rebsamen SMIF students – and their counterparts at other universities – have gone on to play a major role in the financial world.