Cornell Student-Run Hedge Fund Beat Wall Street Returns
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Was 2008 the year you knew you could have beat the market? Students of the Johnson School at Cornell University did just that. The student run Cayuga MBA Fund delivered a fourth quarter loss of just -1.29 % and actually came out ahead by 0.42 % for the year. Compared to the Dow Jones Industrial Average (down 33.8 %) and the S&P 500 (down 37 %) that’s no small feat. So how did they do it?
Key Word for Student Investors: Prudent
The Cayuga Fund’s strong performance was driven primarily by what Cornell MBAs describe as a ‘prudent risk management strategy’ that had shorts and longs performing comparably for the year.
“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 top long performer (at at fourth quarter return of 65%) was Yanzhou Coal Mining Company (YCZ). This Chinese company mines, prepares, transports, and sells coal. It’s done well amid the growing global demand for inexpensive sources of energy.
The best short performer was American Apparel (APP), generating a return of 76 % in the last quarter. This company manufactures, distributes, and retails casual wear apparel for men, women, and children. Despite a weak retail segment, APP has performed well relative to many of its peers.
MBA Hedge Fund Creates Opportunities for Students
Cornell’s Johnson School created the Cayuga MBA Fund as an investment vehicle that aims to provide a competitive rate of return to its investors, but also serves to offer educational and professional opportunities to the Johnson School MBA students. By combining the cutting-edge research of faculty members with the participation of student portfolio managers, the fund provides a return far greater than that which is received by its investors.
Student portfolio managers, quantitative analysts, traders, and an investor relations manager all manage the fund under the guidance of faculty and outside investment advisers. Together, they work to achieve consistent positive returns that are uncorrelated with equity market benchmarks, and to maintain significantly lower volatility than the broader market.
Parker Center the Envy of Wall Street
The Cayuga MBA Fund also benefits from the support of Cornell’s Parker Center, which is a classroom for real-time stock quotes, international data feeds, and financial analysis software and data. This center is valued at more than $1.8 million per year in licensing fees. Representatives from Cornell say it’s as good as, if not better than, the resources found at many Wall Street firms. With this kind of return, who could argue?
What’s the lesson here? Either get yourself to business school, or give you money to someone who’s already there!
