Since its inception in May, 1998, the Golden Gopher Growth Fund has substantially outperformed its benchmark Russell 2000 Index by several basis points. But the fund does not have a chance of heading any best performing fund list. The fund is actually a private quasi-mutual fund investment run by a team of twelve MBA students at the University of Minnesota's Carlson School of business. The fund invests in micro- to small cap companies based in the Minneapolis area.
The Gopher fund is among a handful of mutual funds managed by business school students nationwide.
Four groups of three students each actually run the Gopher fund, analyzing equity investments and quizzing the management and customers of potential portfolio companies. Another 12 students will join the program later this quarter. Each student group chooses its favorite two or three stocks then makes a presentation to a group of five investment advisers who serve on the fund's supervisory committee.
The advisers, volunteers from seasoned money management firms such as Piper Jaffray, Alliance Capital, American Express Financial Services and Dain Rauscher Wessels, point out issues the students may have overlooked and ask probing questions. The advisers vote along with the students to determine what firms the fund should buy.
"Where else could you get the combined expertise of five top mutual fund managers?" said Lou Nanne, student advisory committee member and executive vice president of Voyageur Asset Management. Voyageur is an institutional money manager and former mutual fund advisory firm based in Minneapolis that currently manages $7 billion. It sold its proprietary mutual funds to Delaware Group two years ago.
So far, the Golden Gopher Growth Fund, named after the University's gopher mascot, has only two investors. USBancorp, the first fund investor, provided $1 million as seed money last spring. Norwest Bank, which will become Wells Fargo once its announced merger is completed, announced last month that it will also invest $1 million in the fund.
The graduate student money management program was instituted to enhance the academic program of the Carlson business school and foster stronger ties between the school and the Minneapolis/Twin Cities community, said Nanne. The program gives students hands-on experience analyzing stocks and managing money, said Bill Dudley of American Express Financial Services in Minneapolis, himself a University of Minnesota graduate. But it also offers Minneapolis area small businesses the opportunity to secure new cash.
But the benefits reach even further. The payback to Midwestern advisers is a fresh new talent pool of experienced analysts and money managers to draw on in the future, said Nanne. Some of the firms represented on the advisory committee now guarantee internships to MBA grads.
"If you can develop a student locally, you have a much better chance of keeping him locally," Dudley said.
This is the second class of students to manage the Golden Gopher Growth Fund. The school estimates that last year's original group of 21 graduate students each spent as many as 160 hours researching companies within seven sectors for possible inclusion in the fund. This year's students are just as ambitious and are hoping to build the portfolio from its current eight stocks to about 20, said Neal Dingmann, a second year graduate student and student coordinator of the program. The students also hope to attract additional assets. There are potential new investors but the fund is being cautious about accepting new money, said Dingmann.
Besides learning the fundamentals of managing assets, students learn the do's and don'ts of interacting with prospective firms' officers, said Dingmann. Students also get to face real life money management challenges, such as what to do with a large influx of money.
"Theory can only go so far," said Dingmann.
Just like the managers of any true mutual fund, the students are laying out strategic plans for 1999. The first goal for the new year is to gain some exposure for the fund and develop a mutual fund website, said Dingmann, who does not discount the possibility of the private fund being offered publicly in the future if investors express interest.