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Spotlight Mastering the Market The graduate students who manage the Cougar Investment Fund at the University of Houston's C.T. Bauer College of Business in Texas have had front-row seats for Wall Street's recent wild ride. The lessons they've learned promise to be long-lasting, says Tom George, director of the school's AIM Center for Investment Management. "We've all learned just how much the market depends on whether companies have the cash flow to pay their liabilities," says George. "As the market was in free fall, our students could look at their holdings and see that the companies whose stocks fell the most were the ones with the least liquidity." These students had even more reason to feel the pressure from Wall Street's precipitous drop—their losses had implications outside the classroom. While the money for most student-run funds comes from school endowments, money for the Cougar Fund comes from outside inves- tors. Established in 2002 with $1.6 million from 19 investors, the fund now has 43 investors and is valued at approximately $8 million. As a limited liability investment company, the fund hires an attorney, auditor, and accountant to help stu- dents navigate the complexities of its management. Students manage the fund under one primary con- straint: It must remain fully invested in the market at all times. "Investors thought it was too risky to allow students to move between cash and stocks," George explains. Each September, the Cougar 72 BizEd JANUARY/FEBRUARY 2009 Four students involved with Bauer College's Cougar Investment Fund analyzed the Men's Wearhouse chain to take first place in a national investment research competition. Joe Corkin (center) receives a fitting from a store consultant; with him, from left, are his classmates John Keeton, Quyen Nguyen, and Mauricio Franco. Students learn just how much the market depends on whether companies have the cash flow to pay their liabilities. —Tom George, University of Houston Fund course typically admits 16 students who commit to the fund's management for 12 months. The stu- dents are organized into four teams, each focusing on a particular type of investment such as small growth or large value. For the first six months, team leaders from the prior year's class coach incoming students. "Imagine running a business where the staff is highly skilled but has a 100 percent turnover rate every year," says George. "The program is designed so that new students have time to learn the analysis and deci- sion-making process." So far, in aggregate, the Cougar Fund had shown a 16.6 percent rate of return as of November 2008, compared to a 2.8 percent return for the S&P 500. In addition, four students from the Cougar Fund recently placed first in the Chartered Financial Analyst Institute's Global Investment Research Challenge for their yearlong analysis of Men's Wearhouse, a publicly traded men's apparel company. About two-thirds of the students in the course return to or switch to finance careers after graduation. Their experience with the Cougar Fund gives them the kind of knowledge that Wall Street needs right now, says Ron Singer, managing director of the Cougar Fund. Because students man- age money from real investors, they learn quickly that their decisions have real consequences. "Students start the course with a relatively naïve approach to finance and get more sophisticated as the year goes on," Singer says. "It's a real transformation." ■ z