Hands-on trading experience helps graduates find investment jobs

Financial training used to be about Excel modelling and trading simulations. Now students can have a taste of managing a real investment portfolio, thanks to the increasing popularity of business school-based funds.

Schools hope the funds will improve students’ job prospects and attract more applications for financial training.

Francesco Ciriachi, 31, studied a masters in quantitative finance in Rome, using computers to identify patterns in data sets that can be exploited by trading algorithms. He was then offered places on several courses but opted for an MSc in mathematical finance at Queen Mary University of London’s School of Mathematical Sciences, where he enrolled in 2013. The pioneering student-managed fund, which launched in 2011, was a crucial factor in the Italian’s decision. “It was real investing, instead of reading about it in a book,” he says.

“Financial training at other schools focused on exams, rather than presentations that mimic the work of analysts in the asset management industry.”

That is changing. Yale School of Management, in Connecticut, this year launched an investment fund and provided $500,000 for students from multiple masters programmes, who are all enrolled in a security analysis elective course, to oversee.

One reason was to improve student engagement, says Shyam Sunder, a professor of accounting, economics and finance at Yale. “Effort has increased because students have ‘skin in the game’,” he says, citing the fund’s financial risk. While no participant invests their own money or profits from potential returns, he says “they do not want to lose the school’s money”. Some of the fund’s returns will be used to provide scholarships to students, or to support those who pursue summer internships in the public or nonprofit sector; the remainder will be reinvested.

Course instructors retain control over fund allocation. Prof Sunder says: “If we entrusted the money entirely to students, that would create legal complications, which would have made the fund much harder to establish.”

He does not see management of the fund replacing lectures. “The fund lets students test academic theory,” says Mr Sunder. “If experiential learning was a replacement for lecturing, we would not have any students. They would be trading on Wall Street.”

Alfonsina Iona, senior lecturer at Queen Mary and director of the school’s fund, says that in 2018 absolute returns were 3.77 per cent in mid-May. Returns cover the fund’s operating expenses, and the remainder is reinvested.

About 200 students manage £40,000 of investments in stocks, bonds, funds and exchange traded funds (ETFs) — low-cost passive funds that mimic the return of stock markets. Ms Iona says their best market move was an overweight position in technology stocks after a sell-off during a Facebook data privacy scandal. “Valuations were more attractive, providing a good entry point for investing in these stocks at a lower price point, increasing our expected target returns,” says Ms Iona.

If markets are turbulent, however, that can pile pressure on to students, who are also studying for exams and searching for employment. “Job interviewing is a time-consuming process. It’s a huge burden to do that as well as study and manage investments,” says James Sefton, professor of economics at Imperial College Business School in London. “However, if you get a job in the first round interview as a result of your experience in a fund, that is a huge weight lifted off your shoulders. So it’s worth it.”

Jonathan Fielding, 26, joint chief executive of a fund at Imperial, says the experience helped him land an internship with an asset management company. “During my interview, half the conversation was about the fund,” he says.

The Imperial students manage £100,000 in assets — equities and ETFs — provided by Imperial’s endowment and donors , and are assisted by faculty and industry figures. The fund uses quantitative (quant) investment and fundamental investment strategies, or traditional stock picking.

Mr Fielding says: “It stands out on a CV.”

From prize winner to fund founder

Jonathan Levi, 29, an MSc in finance student at the McDonough School of Business at Georgetown University in Washington DC, is co-founding a hedge fund with a school alumnus who has pledged $4m, he says.

They were inspired after winning an award in the 2018 Peeptrade University Challenge, a trading simulation contest for business school students. Their team turned a $1m portfolio of stocks, options and ETFs into $383bn over eight weeks, which was a global record in paper trading returns.

“We made a name for ourselves in the competition, which drummed up investor interest in a potential fund of our own,” Mr Levi says.

Now he is opening a trading account, he says. “We’re going to test the strategy we used in the competition and try to turn paper into real returns.”