When graduate students at the Darden School of Business at the University of Virginia signed up this year to run the school’s fund, Darden Capital Management, they expected to learn all about the real-life problems of asset management. What they didn’t expect was to have much of their $6.2 million in assets frozen because of the Lehman Brothers bankruptcy. Joining the ranks of big hedge fund firms like U.K.-based GLG Partners and RAB Capital, some of whose assets were also at Lehman’s prime brokerage, the 19 student managers at Darden are now unable to invest part of the assets in the four funds run out of their Charlottesville campus.
Only one of the four Darden funds — the Cavalier Fund — is a true hedge fund, with a long-short strategy and about $1.5 million in assets. Cavalier finished the 2007–’08 school year up 5.21 percent, beating its benchmark, the Standard & Poor’s 500 index, by 10 percentage points.
“We have taken over at a particularly interesting moment in time and look forward to managing the funds through this tumultuous market,” wrote Patrick Connell, the MBA student who is Darden’s chief investment officer, in a quarterly fund newsletter this summer. Not nearly as interesting, though, as what has since transpired, what with the September 15 bankruptcy of Lehman and the ongoing makeover of Wall Street.
The university will not say what percentage of its assets was with Lehman. But the school is “working on retrieving the investments that are stranded,” says Ken White, Darden’s vice president of communication and marketing.
He adds, “While this is certainly unusual, it has proven to be a valuable learning experience for the students in DCM.”
College students are managing a total of $407 million at 314 funds at U.S. colleges and universities, according to Edward Lawrence, a professor at the University of Missouri–St. Louis business school.
The Cayuga MBA Fund at Cornell University’s Johnson School is the only other student-run hedge fund among those 314, which for the most part are either long-only funds or venture capital and private equity funds.
Cornell fund adviser and associate professor of accounting Sanjeev Bhojraj says that Cayuga’s $14.5 million in assets reside safely at Smith Barney’s prime brokerage. Though the fund was down close to 6 percent in the third quarter, it is still up 1.74 percent for the year. Bhojraj says that all in all, regardless of the outcome, there’s nothing quite so educational as actually being in the market: “It’s a very exciting time to be a student running a fund.”
