It is no secret that some of tomorrow’s brightest hedge fund managers are working with investment management and hedge fund techniques during their MBA programs. Sometimes the work is self initiated – running incubator hedge funds outside of class. Sometimes the work is part of a school sponsored program or class designed to give MBA students a crash course in hedge fund management. The release below discusses a recent program by Cornell’s Johnson school which has been particularly successful.
If you are a current MBA student and are thinking about starting an incubator hedge fund, or other type of asset management business, we would be happy to discuss your current and future plans.
Johnson School MBA Student-Run Hedge Fund Beats Market, Manages Risk to Yield Positive Returns
Fund Returns 0.42% for 2008, Down 1.29% in Fourth Quarter
ITHACA, N.Y., Jan. 21 /PRNewswire/ — The Johnson School at Cornell University’s student run Cayuga MBA Fund escaped a bruising year in 2008, delivering a fourth quarter return of -1.29 percent and finishing the year up 0.42 percent. Its benchmarks, the HFR Equity Hedge Index and the HFR Equity Market Neutral Index, delivered returns of -13.7 percent and -1.26 percent in the fourth quarter and -25.45 percent and -1.16 percent, respectively, for the year. The overall market, as measured by several indices was down significantly, with the Dow Jones Industrial Average down 33.8 percent and the S&P 500 total return down 37 percent.
A litany of reasons accounts for the market’s dismal performance, beginning with the subprime crisis and ending with a dire economic picture including rising unemployment and a startling drop in consumer confidence and spending. In the context of this turbulent environment, the Cayuga Fund’s performance was strong, driven primarily by a prudent risk management strategy. Shorts and longs performed comparably for the year.
Returning 65 percent for the quarter, one of the best long performers for the quarter was Yanzhou Coal Mining Company (YCZ). Based in China, the company is involved in the mining, preparing, transportation, and sale of coal. The stock’s performance has largely been driven by the growing global demand for inexpensive sources of energy.
One of the best short performers was American Apparel (APP), generating a return of 76 percent for the fund in the quarter. The company manufactures, distributes, and retails casual wear apparel for men, women, and children. Like most retailers, the company has suffered from negative sector sentiment. Though it has performed well relative to many of its peers, student managers believe the macro environment for retailers is too negative to overcome in the near future.
According to Andy Herr (MBA ’09), investment relations representative for the Cayuga Fund, “In spite of governmental efforts to prop up the financial industry and by extension, the equity markets, the economic picture remains very challenging and we expect this trend to continue throughout 2009. The Cayuga Fund intends to remain focused on generating absolute return through a combination of selective stock-picking and prudent risk management.”
The Cayuga MBA Fund is an investment vehicle that aims to provide a competitive rate of risk-adjusted return to its investors while enhancing the educational and professional opportunities of Cornell’s Johnson School MBA students. It is supported by the analytical platform of the Parker Center, cutting-edge research by faculty members, and extensive participation by student portfolio managers. The Parker Center is a classroom providing real-time stock quotes, international data feeds, and financial analysis software and data valued at more than $1.8 million per year in licensing fees and comparable, if not better, than the resources found at many Wall Street firms.
The Cayuga MBA Fund is managed by 32 portfolio managers, including two quantitative analysts, a trader, and an investor relations manager who, under the guidance of faculty and outside investment advisors, work to fulfill the investment objective of the fund to achieve consistent positive returns that are uncorrelated with equity market benchmarks, and to maintain significantly lower volatility than the broader market.
More information on the Cayuga Fund and the Parker Center can be found online at: http://www.johnson.cornell.edu/parkercenter
About the Johnson School
Founded in 1946, the Johnson School is Cornell University’s graduate school of management. Consistently ranked as one of the top graduate schools of business, the Johnson School builds upon Cornell’s depth and breadth of distinguished research and teaching, and its vast, worldwide network of alumni, faculty, and colleagues. The school’s “performance learning” approach offers students defined frameworks and analytical tools, combined with expert feedback to solve real problems in real organizations. Deliberately small and extremely selective, the Johnson School maintains an intense, collaborative community, where students develop teamwork and networking skills that foster innovation and deliver results. Programs include one- and two-year MBA degrees, an Executive MBA and the Cornell-Queen’s Executive MBA, which offers interactive videoconferencing sessions across the U.S. and Canada. For more about the Johnson School please visit: www.johnson.cornell.edu.