paige allen aristotle fund

The Ups and Downs of a Student-managed Fund

The Aristotle Fund, as benefactor Gerald Rauenhorst named it, was valued at $6 million at the end of last year.

When Professor Mary Schmid Daugherty discovered a donor had offered to create a student-managed investment fund at St. Thomas, she cut short her sabbatical in London in 1999.

Daugherty’s research on employee understanding of defined contribution retirement programs in England and the United States would have to wait.

She returned to campus to get the fund off the ground. Daugherty contacted as many people as she knew in the investment business who were familiar with a student-managed investment fund. She assembled a board of advisers that included many of her contacts involved with the applied security analysis program at the University of Wisconsin-Madison.

To start the fund, the benefactor donated zero-coupon bonds that would mature at a value of $5 million in 2016. The benefactor named the fund after Greek philosopher Aristotle, envisioning that the students managing the fund would use Aristotle’s concept of learning by applying knowledge to actual practice.

“The $5 million value was to be our absolute return benchmark for the next 17 years, but that was not all,” said Daugherty ’80. “[The benefactor] challenged the students to beat not just the absolute benchmark, but track their results against an equity market benchmark and a real estate index over the same 17 years.”

Over the years the Aristotle Fund’s performance has had its ups and downs: It has ranged from a loss of 29.98 percent to a 31.01 percent gain. At the end of last year, the fund was valued at $6.0 million.

A very selective group
Because the Aristotle Fund offers hands-on experience with impressive responsibilities, the selection process is very competitive. Graduate and undergraduate students are interviewed each spring before being allowed to register for the required yearlong Investment Fund Management course, which simulates the duties of stock analysts and portfolio managers. Only 12 to 14 students are chosen each year to operate the fund.

“We look for a group of students that we think can work well together yet think differently from each other,” Daugherty said. “We try to find some diversity of thought and different skillsets. … The cohesiveness of the group is very important.”

The first few months of the founder’s class of nine students were incredibly intense. The class had many considerations that had to be made before the money could be actively managed. An investment firm requires specific objectives, criteria for investment, a definition of the type of manager, specific valuation approaches, information and database services, a mechanism for trading, a customer base (in this case the customer is the St. Thomas Board of Trustees), and a way to track performance, among other things.

By early March 2000 the fund was up and running, and the students were ready to invest. They soon realized that preparing a stock presentation was much harder than they anticipated. Presenting a stock idea to a room full of people with real money on the line is an experience like no other in the classroom.

While the founder’s class had unique challenges, each year leadership of the fund changes, which begins the investing process again. The students begin the year by covering goals, objectives, investment limitations and more. The students inherit the stock portfolio from the previous class and continue to add new ideas, sell others and continuously monitor the portfolio. The student managers rotate the role of the chief investment officer each week during the academic year and a small group of volunteers oversee the portfolio over the summer.

The students aren’t totally on their own, however. There is a board of advisers made up of experts from the investment community, such as Curt McLeod ’86 of Abbot Downing, Andrew Rem of Nuveen and Terry Sandven of U.S. Bank Wealth Management, among others. Each student is assigned a mentor from the list of advisers who provide guidance and act as a resource to Aristotle Fund managers.

In addition to Daugherty, other faculty members involved along the way have included Jim Shovein, John Schweers and Lalith Samarakoon.

The big reveal
Daugherty asked the benefactor for permission to reveal his identity at a party coinciding with the maturation of the zero-coupon bonds in 2016. The mysterious donor? None other than Gerald Rauenhorst, one of the most influential trustees and generous benefactors in the history of St. Thomas. Rauenhorst was the founder of a construction company that became The Opus Group, and he served on the Board of Trustees from 1966 to 2012.

“He was so proud of the program, and he had so many ideas,” Daugherty said. “We implemented a lot of them. That was a terrific piece of it for me – to see a donor witness his vision come to life and be able to work with him on that.”

Daugherty met with Rauenhorst every summer until his passing in 2014. Rauenhorst’s family attended the 2016 party; his daughter, Amy Rauenhorst Goldman, CEO and chair of the GHR Foundation, had the honor of revealing her father’s role in the Aristotle Fund.

“A fierce competitor, Rauenhorst wanted all the future student managers to learn firsthand the challenges of managing money and holding themselves accountable to their clients,” Daugherty said. “Benchmarking – seeing every day how you are performing against your peers – was the cornerstone of what he wanted for the program.”

Alumni successes and reflections
Students have enrolled at St. Thomas specifically because of the Aristotle Fund, and alumni credit their involvement with it for much of their career success.

“The Aristotle Fund gave me really good skills to not only continue my career in finance, but also to be an entrepreneur,” said John Mowery ’13 MBA, managing director at Trademark Financial Management and co-founder of Able Seedhouse + Brewery. “It was truly one of the most valuable academic experiences that I’ve ever had.”

Mowery, an alumnus of Saint Thomas Academy, collaborated with Matthew Hewitt ’98, ’06 MBA, who also attended the academy, to start a student managed investment fund there, which launched this academic year.

Kelly Smith ’15 MBA, vice president of finance for the corporate staff functions at Ameriprise Financial, said no other class was comparable in his MBA program.

“It was the hardest and most rewarding class that I took in all of my undergraduate and graduate classes,” Smith said. “I learned five times more than I learned in any other thing that I did in my collegiate career. … You wanted to perform, because you dealt with real money. It wasn’t theory anymore; it was the real deal.”

Daugherty said that every Aristotle Fund participant to date who wanted to work in the investment industry has obtained a job. Even if students don’t enter the investment industry after graduation, Daugherty said, “What they learn has been so valuable that they can translate that to any job.”