Hands-on experience can be far more valuable preparation for a future job than any amount of textbook problems. However, most students are not allowed to manage more than $40 million in fixed income securities for the University of Wisconsin System, like the the students in the Applied Security Analysis Program are able to do.
Beginning in 1998, the program has managed about $10 million from the UW System Trust Funds in fixed income securities, which are bonds issued by the government, government agencies and large corporations. However, in a show of confidence, the UW System Board of Regents agreed to increase the amount to $40 million Oct. 5.
'We started managing money for the Regents five years ago, and our program has been managing real money for 35 years now,' said UW-Madison business professor Mark Fedenia, who is also the academic director of the program. 'We have shown that we can steer the ship through rough seas, [including] the bear market of the '70s and the recent bear market.'
'We are very pleased that our students and the program have earned the confidence of the UW System,' School of Business Dean Michael Knetter said.
ASAP is a two-year program for graduate students, which strives to develop students into exceptional financial security analysts.
'Managing real capital makes you put your money where your mouth is,' said Michael Gatzlaff, the only undergraduate out of the students who run the fund. There are a lot of intricacies when trading financial securities. It's a lot easier to make fake trades than it is to actually move money around. You are constantly on the phone with brokers making sure that trades were executed well'your fund performance relies on it.'
It is true that while managing real money can provide a better learning experience than investing fake capital, it can also provide a stricter lesson in the realities of poor investing.
'My experience in the last 20 years is that the students always step up to the challenge. That being said, the market is capable of delivering harsh punishment for poor analysis and execution. If we fail to deliver competitive returns, I expect the Regents to find someone else to manage the money,' Fedenia said.
According to Fedenia, ASAP will be managing three portfolios for the UW System. One portfolio will try to beat the Lehman Intermediate Aggregate Index, another will be invested in the full spectrum of U.S. Government Treasury securities and the other will be protecting the UW System endowment from inflation by investing in Treasury Inflation Protection Securities.
