By Kimberly Marselas

Mayer Fund group photo in New York City, on Wall Street trip to visit alumni and friends of the fund before meeting with GM Asset Management.

Policy debates and negotiation are commonplace in Van Munching Hall, but in two particular courses there, making the right arguments can translate into making cold, hard cash.

The Robert H. Smith School of Business is home to two student-managed investment funds in which undergraduates and M.B.A. candidates handle real cash portfolios. The Lemma Senbet Fund and the Mayer Fund each provide hands-on experience with investing, assigning analysis and management responsibilities to roughly 20 students a year.

The goal for each fund is to invest wisely enough to outpace the S&P 500 annually and over time, while improving students’ marketability and paying dividends to the school to support other programs.

Funded in 1993 by the College of Business and Management Foundation, the Mayer Fund has grown from $500,000 to nearly $1.2 million thanks to smart purchases, shrewd sales and additional contributions. The Senbet Fund has gained .08 percent in value since its creation in 2006—a modest but strong showing compared to the S&P’s decline of 3.63 percent in the same time period.

Each fund has 10-12 competitively selected members. Students meet for class twice weekly during the semester and provide reports over the summer break.

“We take our responsibility of the fund very seriously,” says Bill Song M.B.A., M.S. ’08, who manages the Mayer portfolio along with Eric Olesh ’08. “Some of our decisions are contentious and we agonize over our decisions, which we probably would not do if we weren’t investing real money.”

The Mayer Fund is run by second-year M.B.A. students, including the two managers and 10 equity analysts. Each analyst monitors a sector of the S&P—including technology, energy and consumer staples—and pitches four specific stocks for purchase each year.

Beyond the Classroom

The Senbet Fund is open only to senior finance majors, and members of that fund pitch stocks three times a year. Like the Mayer Fund, all decisions to buy or sell are by consensus. Unanimous decisions are tough enough in a strong market, but 2007 and 2008 have made for particularly tough training.

“The biggest lesson that I have learned over the past year is that diversification works, especially in a down market,” says Song. “It’s been a pretty tough year for everyone in the markets and the Mayer Fund held a few very bad stocks like Countrywide Financial and E*Trade. However, these two stocks constituted a very small part of the portfolio … so our performance has held up relatively well.”

Mayer students recently added Starwood Hotels & Resorts and asset management firm Lazard to their portfolio to further diversify. Senbet students added industrial company Fluor Corporation to their holdings. Faculty advisor Sarah Kroncke M.B.A ‘00 says all decisions are intended to advance the motto of “growth at a reasonable price.”

Fund members look for undervalued stocks to buy, and they sell off items that may be overvalued. Once they’ve agreed to invest in a particular company or fund, Kroncke says, they don’t change course unless something “fundamentally” changes. Those fundamental changes include a stock that moves past the price target the team initially established. Students may also find something they think will ultimately be a better investment. Both funds are limited to 30 to 40 stocks, a measure that ensures diversification and keeps the funds manageable for small student groups.

Serving on the fund for a year before graduation provides tangible assets when students begin applying for jobs. Kroncke says prospective employers like to hear students’ investment ideas and the thought processes they employ.

“It gives them something applicable and relevant to talk about in an interview,” says Kroncke, who was a member of the Mayer Fund as a Smith student and worked for Deutsche Bank and Wachovia before coming back to teach. “You can’t replicate that.”

And students in each fund do have a great deal of independence.

“While she may point out some flaws in our analysis or guide us through the process,” Olesh says of Kroncke, “we are completely responsible for any poor investment decisions.”

In the end, that gives students a great sense of ownership. Mayer has turned out approximately 160 alumni since its inception, and they are developing a strong professional networking community. Meanwhile, this year’s managers are training next year’s student leaders and preparing to relinquish their roles.

“While we may look at a company’s prospects for the next five years,” Olesh says, “we only have one year to make a difference in the portfolio.”