The stock and bond funds run by students at the University of Minnesota's Carlson School of Management have been low-cost, top-quartile performers since their start a decade ago -- a feat that most six-figure portfolio managers cannot claim.
Soon, the Carlson Funds Enterprise, which manages more than $25 million for several financial institutions and other participants, could be the first student-run fund in the country to try to achieve self-sufficiency by raising an additional $7 million from investors.
"We're trying to operate a real business through experiential learning, and a real business operates on its own revenue, not even a minimal measure of university support," said Joe Barky, Funds Enterprise program director since 2003.
"This will motivate our students to continue to provide good long-term returns to our participants. And they have done a great job over the last decade."
According to an "offering statement" about to be circulated to prospective donor/investors, Carlson Funds Enterprise seeks to raise $7 million, $3.5 million of which would go toward a remodeling and expansion of the school's lab; an investment management and accountings system, and a fellowship program for needy students.
The other $3.5 million would go into the University of Minnesota Foundation but be managed by the students, who also would be able to tap up to 5 percent annually to cover operating expenses.
In short, it costs about $350,000 annually to run the fund.
That includes data services, salaries for two fund advisers/ instructors and a program coordinator who work with up to 20 graduate and undergraduate students annually.
The draw on the endowment, in addition to a 1 percent fee charged on the $10 million equity fund and 0.5 percent charged on the bond fund, would cover all expenses and end the business school's need to subsidize the operation by about $130,000 annually.
This should be an easy sell.
Those who have invested in the funds have done well over the last decade. And the university has developed a reputation for turning out graduates with hands-on, real-world investment experience.
"The participants can take their money out anytime they want," said Lisa Wangchuk, 27, a second-year MBA student out of St. Paul's Central High School. She's managing director of the equity fund this year.
Barsky, 58, a 24-year stock analyst and portfolio manager at what is now Ameriprise Financial, credits smart students for the equity fund's stellar investing record and making the financial lab a place that's fun to be in. Since May 1998, the growth fund has had a compound annual growth rate of 10.6 percent through Dec. 31, 2007, compared with 3.2 percent for its benchmark, the Russell 2000 Growth Index. The fund would be ranked in the top quarter of its peer group, were it a private mutual fund, based on U.S. small-capitalization fund performance ranked by Morningstar, the mutual fund analyst.
Barsky & Co. do not release the names of the 20 or so stocks in which the fund is invested. But Wangchuk and Barsky released a list of stocks sold in 2006-07, which indicates the fund made good money on ASV of Grand Rapids; Select Comfort, before its 2007 price plunge, and Kyphon, which was bought by Medtronic.
Jeannette Parr, a veteran fixed-income portfolio manager at Ameriprise, joined Barsky in 2006 and oversees the bond fund.
Each student has a money management professional as a mentor and the students run their ideas and decisions past an advisory board. But they make the calls.
The participants who have invested in the fund and/or counseled students include retired Ameriprise investment chief Bill Dudley; Al Harrison, retired Alliance Capital portfolio manager, and former RBC Dain Rauscher CEO Irv Weiser. Corporate support has come from Ameriprise Financial, Faegre & Benson, Kopp Investment Advisors, Securian Life, Wells Fargo, U.S. Bancorp, Piper Jaffray, State Farm Insurance, Thrivent Financial and Allianz Life.
Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com