30 Years of Student Investing
As the McCombs MBA Fund celebrates a milestone, a new generation of investors make their pitch
In November, a group of Texas McCombs MBA students, alumni, and supporters gathered in Robert B. Rowling Hall to listen to a set of student-led investment pitches. The pitches were part of an assignment given by McCombs Finance Lecturer Joshua Kocher. What was at stake: an A grade, yes. But also, hundreds of thousands of dollars.
Kocher is the CEO of Texas McCombs Investment Advisors LLC (TMIA), UT’s very own student-run multimillion-dollar asset management company. The student groups were pitching a new set of public equity investments to TMIA alumni, investment counselors, and Advisory Board members. “What makes TMIA different from most other student-managed funds is that this isn’t play money — they are being asked to manage real money on behalf of real investors. That’s why the program is so impactful for students,” Kocher says.
TMIA and the investment funds it manages were the brainchild of the late McCombs Dean George Gau and McCombs Professor of Finance Keith Brown. Thirty years ago, Gau and Brown persuaded 37 investors to commit $1.6 million to the funds. Their pitch back in 1994: commit a portion of your personal wealth to an untried experiment designed to give a select cohort of students the chance to manage your money and earn their chops in the market. Today, students manage more than $20 million of assets.
“It is truly remarkable to see the difference that the Fund has made in the lives of all those involved over the many years,” says Brown, who has remained engaged with the fund since its inception. “This is an educational program that represents a perfect marriage of theory and practice, and it remains one of the crown jewels at McCombs.”
The fund manages two portfolios of securities traded in U.S. markets: the Longhorn Fund, a large-cap domestic equity portfolio benchmarked to the S&P 500, and the Endowment Fund, a well-diversified asset allocation portfolio managed primarily through the use of exchange-traded funds. Throughout the year, students meet in the classroom with Kocher as well as with guest speakers from across the financial spectrum — from hedge fund and retirement fund managers to activists, short sellers, and specific vertical specialists.
“The main goal is to prepare our students for the future. Understanding how a business works, understanding when an investment is over or underpriced, and convincing your peers of your view are universal skills,” says Kocher.
All of these skills came to play at the meeting last fall, as the student teams pitched four trades to TMIA’s advisors and investment counselors: Nike; Box; Davita, a private provider of kidney dialysis services; and Forward Air, a freight company. The rules are simple: The pitch is worth 20% of their grade. If the trades are approved, they get an A. If not, a C.
“Now don’t feel bad. Every MBA student will still graduate,” Kocher jokes. But clearly these students have been paying attention in class. All four pitches are approved, meaning TMIA will make significant investments in the four companies, and everyone gets an A for that portion of the course. But really, the value of the program is in the experience it provides.
Does the election result change the game? How will the value of gold be affected by turmoil in the Middle East? Should we be bullish about the energy sector, given rising demand and uncertainty around fossil fuels? Students aren’t just thinking through making specific investments for the TMIA portfolios. They are contemplating the future of the world itself.
And they are doing so with humility. One fund manager spoke about the choice to invest in gold: “We didn’t make a big enough bet — the thinking was there and it worked, but with only 1% of the portfolio invested it didn’t make a big impact.” Another fund manager commented, with a wry smile, “The market doesn’t wait for you to make up your mind.”
Another student suggested those gathered join him in a life rhythm he has begun to practice over the course of the program. “If you feel convicted about something, write it down and give it a year. And if you hold yourself accountable like that, you will be humbled by what you think will happen and what actually does happen.”
Financial acumen, balanced by humility, sets these students up for fruitful careers, as evidenced by those gathered for the pitches, many of whom are alumni of the TMIA program and have gone on to be senior analysts, portfolio managers, and investment company founders.
Kocher shared a letter that he’d received from a recent TMIA alumni: “I’ve learned more than I ever thought I would, so much that I have requested [my current company] to allow me to do my first rotation in mergers and acquisitions and investor relations. I’m nowhere close to calling myself an expert, but I do think I am more confident than most of my peers in analyzing companies.” It’s these kinds of student stories — and there are many of them — that underline TMIA’s value to McCombs, Kocher says.
Gau retired as dean in 2008, saying at the time, “I get great joy from seeing initiatives accomplished. To be able to take an idea, structure it, convince people of the worthiness of the initiative, figure a way to move it forward, and then see it actually accomplished gives me great satisfaction. I also enjoy seeing people develop.” TMIA’s 30-year journey is the epitome of that joyful arc.
And the story is far from finished. In mid-December, a new set of student fund managers commenced their work with the Longhorn and Endowment Funds, starting off with a road trip to Houston to meet with alumni, mentors, and investment professionals. In April — and again next November — it will be their turn to pitch.
Story by Ben Wright
