Investing with Consequences

Aristotle Fund prepares students for work in emerging markets

Many M.B.A. students wonder what it will be like to manage a large investment portfolio for a client someday. They go to class, learn about valuation and market trends. They study historical data, project future earnings and work with peers on group financial projects. Unfortunately, few of these students ever have the good fortune – or the pressure – of managing a lucrative portfolio before they land an investment job after graduation.

University of St. Thomas 23 But what if M.B.A. students had an opportunity to manage a large portfolio as part of their graduate business education? What if they were responsible for making investment decisions and trades under the guidance of professors and investment professionals so that there could be a practical applicationof the education they were receiving?

Ten years ago, the Opus College of Business started asking these same questions, and in 1999 they decided to literally put the university’s money in the hands of a select group of M.B.A. students.

The St. Thomas Investment Committee of the Board of Trustes, with the generous financial support of an anonymous donor, agreed to give the Opus College of Business $5 million to create an investment firm – the Aristotle Fund – that would be managed by students enrolled in a course devoted solely to managing the fund.

The first investment was made March 6, 2000. The Aristotle Fund course began Sept. 1, 1999, but the students spent much of their time developing an investment policy statement, a valuation model and presentation format, and a mechanism for communicating with the broader community. In essence, they built an investment firm from the ground up. Current Aristotle Fund students manage the fund for the year they are enrolled in the course, and they serve as security analysts and portfolio managers.The class meets weekly for the entire academic year, and there is considerablecontact with classmates and professionals in the field who volunteer to serve as mentors and faculty.

Students working with the fund throughout the last seven years have experienced some significant market fluctuations. Some have weathered the difficult days after Sept. 11, 2001, while others have witnessed the unprecedented highs and current volatility brought on by the home mortgage industry. In all, the students have held their own.

Since the first investments were made in spring 2000, the Aristotle Fund has kept pace with the market. Last year, the fund beat the benchmark by 251 basis points (2.5 percent). This year (as of Aug. 31) the fund is ahead of the benchmark by a  remarkable 322 basis points (3.22 percent).

But the key to the fund remains that it is entirely student-managed. The students make all the investment decisions, handle all the trades, track the performance and report back to the investment committee of the St. Thomas board. As a result, students learn all aspects of investment management in a very supportive environment and they are well prepared for working in the field after graduation.

While the course focus has been on developed capital markets, the principles emphasized in the Aristotle Fund course have been applied by St. Thomas graduates in emerging markets as well. Of the 87 graduates of the Aristotle Fund, eight have been international students. Of those eight, four have since returned to their own countries to work.

These four students now consider their fund management experience vital to their ability to adapt to the challenges they face at home. The world they returned to was very different from the one they left, and their UST MBA education – including managing the Aristotle Fund – prepared them to face a changing environment that is years behind their education. Their personal challenge is to reintegrate into an environment that is embracing capitalism within a context of their own country’s economic development.

Here is an update on the four students who have returned to their homelands. George Stavrou ’03 M.B.A.

I had the opportunity to visit George Stavrou when I traveled to Cyprus last winter. I arrived in Larnaka, Cyprus, on a sunny day in early February. The friendly Cypriots at the airport were busy talking and did not seem to care about the hour wait I had for my luggage. I instantly understood what Stavrou meant by the different pace of life in his country.

To the vacationing tourist, this remote island (closer to the Middle East than to Europe) appears to be a peaceful vacation spot – there are safe streets, sandy beaches and delicious food. Evidence of a simpler life is present, with shops open limited hours and families socializing together in large numbers. But this tranquility belies the underlying tension rooted in a tumultuous 10,000-year history.  It wasn’t until 1960 that Cypriots finally won their independence and became the internationally recognized Cypriot nation-state. But this peace was short-lived. Cyprus was split in a 1974 Turkishinvasion that was sparked in response to a coup attempting to unite Cyprus with Greece. The end result was that roughly one-third of the population was internally displaced (Turks to the north, Greek Cypriots to the south), and the northern 40 percent of the island was placed under Turkish control.

Despite attempts by the United Nations and the European Union to reunify the island, their efforts to date have been unsuccessful. The most recent referendum for  reunification was rejected two years ago by the Greek Cypriots, many of whom still remember leaving their homes and possessions behind.

Stavrou is working as a research analyst at CLR Financial Services in Nicosia, Cyprus. CLR is the largest money management firm in Cyprus. One of the first things he said to me when we had a chance to discuss his work was how exciting it was to be able to work in an emerging market knowing the potential that exists for his firm and his country going forward.

“My experience with the Aristotle Fund, in particular, was more than valuable.” Stavrou said. “I was ready to pick and cover stocks from day one; however, my experience was acquired in a mature stock market, whereas the Greek and Cyprus stock markets are developing markets with limited information. That has been my biggest challenge.”

Phoebe Liu ’02 M.B.A.

Phoebe Liu is working for IBM in Beijing, China.

“After graduating from St. Thomas, I worked briefly as an intern at RBC Dain Rauscher before accepting a job with IBM in China,” Liu said. “I definitely believe that the modeling, analytical and sales skills I learned from working with the Aristotle Fund helped me to get the job.

“Currently, I am a financial analyst working directly with top executives from around the world. Though China is a huge growing market, I am the only financial analyst for IBM’s China investment. My job duties specifically require interacting with investment owners, evaluating the investment requirements and tracking all the investment in China. I report to the Investment Review Board every month.”

Liu is grateful for the real-world training that the Aristotle Fund provided. “I learned how to present myself in front of the Chartered Financial Analyst [CFA] society and  investment boards, and how to work with different mentors. My work on the fund also prepared me for what it would be like to work long hours and research my position before a challenging decision would have to be made. Modeling skills from the Aristotle Fund have helped me on every project.

“I also benefited from my Aristotle Fund experience by learning how to think and to ask questions. My job requires me to visit many departments and to consolidate data and answers, so the ability to question the answers I receive is very important. This process always gives me a deeper understanding of the situation, and I learn more about the company and the business.”

Vlad Nosyk ’04 M.B.A.

Vlad Nosyk is a strategy analyst at Renaissance Capital in Ukraine. He recalls an important lesson he learned from his mentor and Aristotle Fund adviser, Roger Norberg. “Roger once told our class that ‘there is never an oversupply of good ideas.’ His advice was one of the most valuable things I learned in the MBA program. It is so important to know the difference between a great and not-so-great idea. Great ideas are tough to find, but their impact on performance justifies the effort of daily, mundaneresearch.”

Nosyk’s job is to generate trading ideas for clients. The standards are high, as Renaissance Capital has been recognized by Institutional Investor magazine as having the top research team in Russia each of the last five years.

“What is different about my experience in Ukraine versus the Aristotle Fund is that I now deal with stocks that behave like micro-caps. The satisfying part of dealing with these illiquid securities is seeing the impact of our recommendations on the market – something that few analysts get to enjoy in developed markets. It is truly rewarding.”

Nosyk’s recent experience as a strategy analyst has him looking toward the future. “The ultimate reward would be to set up my own asset management operation. I think this goal is realistically achievable within the next five years. For me, it has been a unique experience seeing a market that reflects a higher degree of information efficiency (like in the United States) and a market that is on the lower end of the efficiency spectrum (like the one here in Ukraine).

“The way the markets behave are quite different in these two environments, and I think learning about both has contributed a lot to my empirical knowledge of investments.”

Rabih Aoun ’06 M.B.A.

Rabih Aoun went directly from the Aristotle Fund class to his war-ravaged country of Lebanon. His first year home was anything but conventional. Work was impossible to find when his day-to-day world revolved around keeping his family safe. Yet during this time he continued to follow the markets and even answered questions about the fund until a new class took over in fall 2006.

Aoun is now working for Comium, a group of engineering and service companies specializing in telecommunications. As a senior financial analyst, Aoun’s duties included financial control and reporting on all 24 operations of the company, revenue assurance, budgeting, and centralizing banking operations for all online businesses.

Aoun is using the skills he learned from the Aristotle Fund course every day. “I appreciate all the hard work and time that was required in the class. It helps me a lot in my work,” Aoun said.

Despite the very difficult working conditions in Lebanon (“Do not ask me how we are even working.”), Aoun continues to focus on the financial work he was trained to do while at St. Thomas. “We just get used to the situation here,” he said.

Because many of his peers from the MBA program are dispersed throughout the world, Aoun said, “I miss all the camaraderie with my classmates. Honestly, I miss everything in Minnesota.

“Yesterday, I checked the Aristotle Fund performance sheet, and I was surprised that it did not have any tech stocks,” Aoun reported before offering a stock tip to the current Aristotle Fund students. “I wish that I was there to contribute.”

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