Listen to this article
Few asset management professionals go from chief investment officer of a fund they co-founded to analyst — but that is the direction in which Nicola Zanetti sees himself heading.
Mr Zanetti, an Italian, is one of a growing number of scholars with aspirations of a career in asset management who are cutting their teeth at student-led investment funds. These business school initiatives aim to give students real-life experience of managing money, taking academic theory from the lecture theatre and putting it to work in the markets.
“I have been most surprised that when you put strategies from academic papers into practice, the results can be totally different,” says Mr Zanetti, who is studying for an MSc in investment and wealth management at Imperial College Business School in London.
Imperial launched a student-led fund in April, after similar moves by other schools, mostly in the US. The Imperial fund is backed by £100,000 from the university’s endowment and donors. It is overseen by an advisory board that includes academic staff and investment industry staff, such as Victor Li, a fund manager at JPMorgan Asset Management, and Guillaume Benhamou, a private equity manager at Tikehau Capital.
Most of the fund is invested using computer-driven quantitative strategies, one of the fastest growing areas of the wider market. Mr Zanetti, who oversees that part of the fund, says this was one of the main reasons he became involved.
“We start with research and move to backtesting,” he says, referring to the practice of applying trading strategies to historic data. “We get the opportunity to develop our knowledge of computer algorithms and programming. We also gain experience in how to present our ideas. These are useful skills for our future careers in asset management.”
Academics at Imperial, ninth in the FT Pre-experience Masters in Finance ranking, had wanted to launch a fund for several years, but it was not until students convinced the school to back it that the plan took off.
“We see this as an educational tool, definitely not a speculative tool,” says Walter Distaso, professor of financial econometrics (the application of statistical methods to market data) at Imperial. “It’s designed to complement what we do on the course, something that is tangible and practical.”
Prof Distaso is one of a few academics who set the risk parameters, which he says are tight, but the students do the day-to-day trading. The school is in talks with investment companies about sponsorship opportunities, which could lead to the size of the fund growing.
One of the biggest considerations when setting up the initiative, says Prof Distaso, was to limit short-termism, a problem for student-run funds as most of the participants are on one-year programmes. “There will inevitably be a lot of turnover,” he says. “Some students have agreed to stay on the executive committee even when they leave and PhD students will have a longer tenure.”
Another student-led fund was designed to promote long-term thinking. Two years ago, Columbia Business School in New York launched the 5x5x5 Student Value Investment Fund, which was backed by Thomas Russo, a stock picker in Pennsylvania.
The fund invests $250,000 a year in five investment ideas that have been put together by students on the school’s value investing course. When students pitch these ideas they have to do so using no more than five clear arguments. The investments are held for five years and the students who pitched the ideas return after graduation to discuss how their investments have fared.
“Some student-led funds have seen each new year’s management team liquidate their predecessors’ holdings, which means they don’t learn from their mistakes,” says Meredith Trivedi, administrative director of the Heilbrunn Center at Columbia, who sits on the fund’s board. She says another benefit of former students returning to discuss their investment ideas is that it helps to create an alumni network for those starting their careers.
“Tom [Russo’s] goal was to get students to push their investment horizons out — to think about what can go in the portfolio that will be held and that they will be accountable for in five years’ time.” After five years, stocks are sold and the money reinvested into the fund. Any capital gains are used to provide financial aid to future students.
Investment managers work notoriously long hours and involvement in business school funds prepares students for a career of early starts and late finishes. “Time is the biggest constraint,” says Mr Zanetti. “So far I have managed quite well to divide my time between the course and the fund. I have been studying at night and early in the morning. When you are passionate about something you can easily find time.”