Summer 2004 Investing A newsletter of the Carlson Funds Enterprise Carlson Growth Fund Now Has Five Year Track Record The Carlson Growth Fund began operations in May of 1998 and was funded by four of the Twin Cities leading financial services firms. Original contributed capital totaled $3.5 million. The Growth Fund is a small capitalization growth fund and is benchmarked against the Russell 2000 Growth Index. Despite the turbulence of the markets over the last five years, the Growth Fund has enjoyed tremendous success with assets now at $4.5 million. Accounting for the flow of the initial investments, the fund is up over 50 percent since inception versus the benchmark, which is unchanged. Obviously, six different classes of students have done an outstanding job of managing the portfolio! There are currently nine students involved in managing the fund. Recent performance is highlighted below. Each year, the Growth Fund students present stock recommendations to their mentors (the Investment Policy Committee) in December and May. The mentors (analysts and portfolio managers from several financial firms around the Twin Cities) meet with the students throughout the semester and discuss issues relevant to their research report. In addition, the students are required to contact company management either by *Inception: 5/1/98 2003 YTD 2004 Last 12 mos. Since Inception* Carlson Growth Fund* 54.14% 4.52% 72.64% 57.24% Russell 2000 Growth Index 48.54% 5.58% 63.16% (0.90)% phone or in person to discuss the company s strategy and outlook. The students then prepare an extensive written research report (the format is very similar to a sell-side research report). The mentors then receive all of the reports a week before the Investment Policy Committee meets. At the meeting, the students have three minutes to make their pitch, followed by about twenty-five minutes of Q&A from the mentors. If the students have made their case convincingly, the committee then approves the recommendation. If not, then the stock can not be added to the portfolio. From that point on, the students manage the portfolio, executing the trades, measuring the performance, and preparing monthly reports for investors. Currently, there are 23 securities held in the fund, with residual funds held in cash and the Russell 2000 Growth i-shares. A Message from the Carlson Funds Enterprise Program Director Welcome to the first issue of Investing, the Carlson Funds Enterprise newsletter. We plan to publish in the spring and the fall. The purpose of this publication is to inform Funds Enterprise graduates, Carlson School alumni, and others about the success and development of the Funds Enterprise. As you know, the Funds Enterprise was the Carlson School s initial Enterprise, representing an effort to give students real life money management experience and a leg up on entering the workforce in a variety of disciplines including investment research, investment banking, corporate finance, money management, sales and trading. This program, started six years ago through the collaboration of the finance department and local financial services firms, is seen as a win, win, win effort by employers, students, and the university. We now have about 100 CFE alumni engaged in all of these occupations. Our idea is to keep you up to date on the performance of our funds, new activities, job placements, and to profile our students, alumni, and volunteers. We hope this will reconnect you with or introduce you to our program. We are proud of what the students have accomplished and hope to make our program a less well-kept secret. And we would love your feedback and ideas. Of course, if you prefer not to receive this newsletter, let us know that as well and we will remove you from the distribution list. Feel free to contact me, Joe Barsky, at jbarsky@carlsonschool.umn.edu or 612-624-4199 with any suggestions.
Brad Thompson Profile: Managing Director Growth Fund, Brad Thompson Brad Thompson served as Managing Director for the Carlson Growth Fund this year. Having grown up in Kansas City, he moved to Minnesota in 1995 after graduating from Southwest Missouri State University to take a job at Macalester College as an instructor for collegiate debate. In 1996, he joined Imation (a former 3M subsidiary), taking a position in IT project management. Brad successfully led IT implementations in the United States, Canada, Korea, Germany, and the Netherlands. After several years in this role, he decided to make a career change and enrolled at the Carlson School of Management. He began his MBA one month after getting married and, at the same time, his wife enrolled in law school at the University of Minnesota. Brad s focus was finance, which led him to apply and be accepted into the Carlson Funds Enterprise. In his role as managing director of the Carlson Growth Fund, he was responsible for ensuring that the student analysts perform the various functions required to keep the fund operating successfully and to serve as the liaison between faculty and students. In the summer between his first and second years, Brad completed a strategic pricing internship in the Healthcare division at 3M, where he focused on end-user research for possible product introductions. Upon graduation this year, he will begin an MBA finance rotation program at Target Corporation. Brad is interested in all areas of finance, and the Carlson Funds Enterprise enabled him to become better informed about the operation of the financial markets. Brad also strongly believes that his experiences in the Funds Enterprise helped him land his post-graduation job at Target and was instrumental in his career change into finance. Carlson Growth Fund Seeks New Investors The Carlson Growth Fund currently has four investors who capitalized the fund in 1998. The fund is structured as an unregistered, limited liability corporation. This year, several students collaborated with the Growth Fund faculty to develop a new pitch book to be used in soliciting new investors. While the Growth Fund has enjoyed strong performance over the last five years, no new investors have been admitted. With the development of the new marketing pitch and a desire to offer students a complete investment management experience, Growth Fund students will be pitching for new business in the fall. We are targeting our traditional investor base local financial services firms as well as other corporations and accredited investors. We expect to make such solicitations an ongoing part of the program. In addition, the fall semester will witness the advent of a more active client service program. These activities will offer our more sales- and marketing-oriented students opportunities to hone their skills and open up job opportunities in sales at investment management firms. The goal of the Funds Enterprise program is to operate as a real investment management business, offering students a real-world experience that marries the academic and practical sides of the business. Our effort to gather more assets, on which we earn administrative fees, will drive us to a more financially self-sustaining program. Carlson Funds Enterprise Employment With the rebound in the financial markets over the past year, the job outlook has brightened for our students. As of our publication date, four of our graduating students had secured jobs in sell-side equity research (three in Minneapolis and one in New York), two have accepted positions as buy-side debt analysts, one as a sell-side debt analyst, one in fixed income sales, two in investment consulting, and another five have accepted offers in corporate finance at several of our larger locally based corporations. We continue to work on placing our students in high profile jobs in both investment management and corporate finance. We have learned that our Carlson School alumni can play a critical role in championing our students in their job search. We encourage our students to network with our alumni to help in securing the initial interview. This is particularly important for students who wish to work for firms located outside the Twin Cities, where the Carlson School is not as well-known. Of recent note, the Carlson School Full-Time MBA program was recently ranked 21 st by U.S. News & World Report (up from 26 th the previous year). If you would be interested in serving as a champion when the opportunity arises, please contact Joe Barsky, CFE Program Director, at jbarsky@carlsonschool.umn.edu or 612-624-4199.
Carlson Fixed Income Fund In March 2003, five local financial services firms and one foundation became the initial investors in the Carlson Fixed Income Fund. The fund began with $11 million in capital and is benchmarked against the Lehman U.S. Intermediate Aggregate Bond Index. The fund can invest in most areas of the bond market, with the exception of the high yield segment. The fund strives to be duration neutral and has limits on the size of positions based on debt ratings. The students in the Fixed Income Fund research securities by sector, i.e. high grade corporates, mortgage backed, asset backed, U.S. governments and agencies. Fixed Income Fund students have mentors from the local financial community who not only guide their research efforts, but also serve as the Investment Policy Committee that rules on their recommendations. The students present their recommendations to the committee twice per year. The Fixed Income Fund has both a professional advisor and, beginning this fall, a dedicated faculty advisor to instruct the class in the inner workings of the fixed income markets. The initial year involved creating a balanced portfolio that would closely track the benchmark. At the same time, the students were learning that transaction costs were high due to the small size of their investments and the volatility of the fixed income markets. In what was a difficult first twelve months, the fund enjoyed a positive return while slightly trailing its benchmark. Results are shown below: *Inception: 3/1/03 First Quarter 2004 Since Inception* Carlson Fixed Income Fund* 1.60% 3.07% Lehman Intermediate Index 2.27% 4.89% There are eight students from the class of 2005 managing the fund during the upcoming school year. The current structure of the portfolio follows: Sector Distribution Current % of % of Market Effective Benchmark Market % of Benchmark Portfolio Value (s) Duration Duration Value Duration Duration U.S. Treasury $1,510,684 4.13 3.48 13.3% 21.8% 20.6% Agency $1,044,596 1.66 3.25 9.2% 6.1% 12.2% Corporate $1,510,684 4.13 3.48 13.3% 21.8% 20.6% Non Corporate $1,510,684 4.13 3.48 13.3% 21.8% 20.6% ABS $1,510,684 4.13 3.48 13.3% 21.8% 20.6% Mortgage-Backed $1,510,684 4.13 3.48 13.3% 21.8% 20.6% Cash & Equivalents $1,510,684 4.13 3.48 13.3% 21.8% 20.6% Total Market Value $11,337,470 2.52 3.20 100.0% 100.0% 95.3%
Peter Ginsberg Carlson Growth Fund Mentor Makes an Impact Peter Ginsberg began serving as a mentor for students involved in the Carlson Growth Fund last year. Peter s career as a health care analyst has included stints at USAA Investment Management, Vector Securities, and US Bancorp Piper Jaffray, where he was named a Wall Street Journal All-Star in 1999 and 2000. He currently is responsible for health care equity investments for Deephaven Capital Management, a market neutral hedge fund manager in the Twin Cities. Peter s career, spanning the buy side, sell side, and hedge fund community gives him great perspective to share with the students he mentors. While we can not claim Peter as a Carlson alumnus (he received his MBA from the Amos Tuck School at Dartmouth College), we thought his perspective on mentoring would be interesting. Peter has worked with students at a variety of other business schools, as well as guest lecturing in several classes at the Carlson School. His interest in the Carlson Funds Enterprise stems from what he believes is a truly unique program that combines both the theoretical and practical sides of investing. In addition to sharing his perspectives on the investment business and helping the students work on their research projects, Peter also offers advice on investment careers. And once each semester, Peter and the other mentors gather to serve as the Investment Committee to review and approve new student recommendations for inclusion in the funds. As he has gained first hand experience with the program and our students, he has seen that there is an opportunity for Deephaven to build a stronger relationship with the school by including Funds Enterprise students in their internship selection process. Like others, Peter recognizes that the Funds Enterprise is developing a talent pool for local and national financial firms to draw upon. As such, this becomes a win, win, win proposition for our students, the Carlson School, and the local business community. It is the mentors, like Peter, who volunteer their time and talents that make the Funds Enterprise an even more meaningful experience for our students. Their support is truly critical to our success. Save the Date Please be certain to mark your calendars for Thursday, Oct. 21. We will be having an open house for the Carlson Funds Enterprise that afternoon with an address by Mr. Michael Mauboussin, Chief Investment Strategist for Legg Mason Funds Management and formerly the strategist for Credit Suisse First Boston. Mauboussin is well known for his thought provoking investment research. He is the co-author of the book Expectations Investing: Reading Stock Prices for Better Returns and is an adjunct professor of finance at Columbia Graduate School of Business. More details to come.
Vickie Maile Profile: Managing Director Vickie Maile Vickie Maile served as Managing Director for the Carlson Fixed Income Fund this year. After growing up in a small town near Green Bay, Wisconsin, Vickie attended the University of Wisconsin in Madison to earn her Bachelor in Business Administration in actuarial science. After graduating with honors in 1999, she moved to Connecticut and joined CIGNA in its actuarial rotation program. During her time there, she worked on Medicare HMO pricing as well as reporting and analysis for the retirement and investment services division. Realizing that she did not have the right passion for actuarial science, Vickie decided a career change was in order. Picking up and moving halfway across the country for the second time in four years, she enrolled at the Carlson School of Management and received a Dean s fellowship to pursue her MBA in finance. Vickie originally anticipated applying for the Carlson Growth Fund when she decided to attend the Carlson School, but she ultimately chose the Carlson Fixed Income Fund because she was intrigued by the opportunity to shape the structure of the relatively new fund while learning about the variety of investment instruments used there. In her role as managing director, she was responsible for ensuring that the student analysts performed the various functions required to keep the fund operating successfully and serving as the liaison between faculty and students. Given that her tenure covered most of the initial investing phase for the fund, with its related growing pains, this was quite a challenging job. In the summer between her first and second years, Vickie completed an internship at General Mills, where she led a crossfunctional team on a product placement and display initiative and worked on developing the ten-year plan for refrigerated dough products. Upon graduation this year, she will return to General Mills and enter its finance rotational program as a senior financial analyst. When she s not busy with her school activities, Vickie relaxes by watching classic movies and cheering on her favorite NFL teams. Dates to Remember 7-6-2004 First Tuesday Securities Industry in Transition: Guiding a New Path Andrew Duff Chairman and CEO, Piper Jaffray 8-3-2004 First Tuesday Committing to a Winning Culture Flip Saunders 9-7-2004 Classes begin 10-21-2004 Carlson Funds Enterprise Open House