The MBA Students Gaining Practical Investment Management Experience
From his base in Silicon Valley, Jordan Lee took a surprising decision in early 2019. He opened the books of his start-up company to detailed scrutiny from an unusual group of potential investors: MBA students from Dartmouth College with only $25,000 to offer.
“One of our venture capital backers put us in touch,” says Mr Lee, who has already raised $2m in seed funding for his company CollegeBacker which provides a way for families and friends to navigate complex tax structures to contribute to a loved one’s tuition fees. “The process the students ran was really impressive. They were mission-orientated, clear and rigorous. We were super excited and honoured that they would invest.”
For Alyssa Kasanoff, who has just graduated from the Tuck School of Business at Dartmouth, participating in the decision by the Tuck Social Venture Fund to invest in CollegeBacker was one of the highlights of her MBA.
“We look for companies that are excited to partner with us, and we were interested in CollegeBacker because of the implications for higher education,” she says. “We are just a pesky little investor bugging companies for information, but most have been receptive to the idea of our different lens as operators, investors and future business leaders.”
Stanford, the University of Minnesota, London Business School and IESE in Spain are just some of an increasing number of business schools that offer students the chance to gain practical investment management experience. Many of these have a focus on social as well as financial objectives.
“It’s really exciting,” says Nicole Torrico, programme manager at the Intentional Endowments Network, a US-based group of university investment officials interested in directing funds towards sustainability. She estimates that there are some 200 student-managed funds in universities, more than 30 of which have a focus on “impact” — notably environment, social or governance (ESG) issues.
Late last year, faced with strong demand, her organisation established the Sustainable & Impact Investing Learning & Knowledge (SIILK) Network to showcase examples and share experiences among student-managed funds. It holds regular calls with student funds on issues including launching and structuring funds, how to conduct due diligence and considerations around investment returns.
Ms Torrico identifies 2014 as a turning point. Student pressure led to some university endowment funds divesting from fossil fuels and to others earmarking a portion of their portfolios for investment in companies meeting specific ESG criteria. Sometimes this was done in consultation with students or led to funds being managed directly by students.
John McKinley, executive director of Tuck’s Center for Business, Government & Society, says: “We see a groundswell of interest across the student body around ESG which reflects the larger macro trends. More and more schools are looking for opportunities.”
A former impact investor, he helps oversee the Tuck Social Venture Fund, which was backed by $100,000 donated by alumni and focuses on clean energy, healthcare, food, technology and education. CollegeBacker is its third investment, following one in Education Modified, to support children’s learning, and another in Brightfield Transportation Solutions, a network of charging stations for electric cars.
“Funds are a laboratory for student learning: what is impact investing, what are the different tools and the biggest challenges for implementation,” he says.
He points to a recent study by JPMorgan Private Bank highlighting the shift of wealth into the hands of millennials over the coming decade, and how sustainability is an investment priority for them. “The next generation is disproportionately looking to align with positive social environmental outcomes. That’s a significant shift from 10-15 years ago.”
Helena Hong, a recent graduate of the UCLA Anderson School of Management, is typical of the trend Mr McKinley describes. She participated in one of five teams helping run the Anderson Venture Impact Partners fund, established in 2017 with $500,000 donated by an alumnus.
She previously worked in what she describes as “conventional for-profit investing” for a foundation’s endowment but decided to take an MBA and refocus on impact investing, with a particular interest in climate change. “There are incredible ways to leverage finance and support issues that need the capital,” she says. “It seems fitting to use my background for something more socially oriented.”
Ms Kasanoff says one of the greatest debates students at Tuck had was around the definition of impact they were seeking. “That’s one of the most challenging conversations. It can mean different things across different asset classes.”
Matthew Baer, freshly graduated from Tuck and who worked with other students from other universities’ student impact funds, says one concern he often observed was how to handle the fiduciary responsibilities of the fund. “We were lucky, we had administrative support and the ability to navigate the structures for investment,” he says.
It is too soon to tell whether MBA students will prove to be astute investors — these funds are new and some not even fully invested. But many like Ms Hong, who now carries out impact investing for a family foundation, say they have benefited from the experience. “It is just as important for student investors to learn when to say ‘no’ to an investment opportunity even when it’s compelling. A lot of times, even in a professional setting, you do all the diligence but you have to take a hard look and if you have some concerns or hesitations, you can always wait,” she says.
There also appears to be plenty of interest from companies, which gain not only funding but also insights from MBA students on specific projects and the chance to meet potential future recruits.
At CollegeBacker, Mr Lee says: “Having the university affiliation is always good given our product. It provides us with an opportunity to recruit on campus and we may use universities as a distribution channel.”
This article was originally published on Financial Times.