Hylander Student Investment Fund (HSIF)
1. Investment team
1.1 The HSIF investment team will consist of 10-20 members.
1.2 Membership on the HSIF team will begin from fall and last until the end of the following summer except for replacement team members, whose terms last until the end of summer.
1.3 Only HSIF team members may vote on HSIF trades.
1.4 The faculty advisor for HSIF will be the same as the advisor for Hylander Financial Group (HFG) and must be a member of the full-time finance faculty at UCR.
1.5 The HSIF team and the HFG club must meet no fewer than five times each quarter during the academic year.
1.6 There are two standing HSIF committees: an asset allocation committee of no fewer than three student members and a portfolio committee of no fewer than five student members.
1.7 The work of serving as faculty advisor will count as the equivalent of one quarter course and will be compensated with a course release from the instructor’s regular teaching load of the discretion of the Dean.
2.1 Undergraduate team members must have completed BUS 106, BUS 132, and BUS 136 with a B or better in each of the three classes. Graduate students must have completed MGT 202 with a B+ or better.
2.2 To become a team member, candidates must submit an application form to the faculty advisor.
2.3 Potential members will be interviewed by the finance faculty, who will make the final decision on acceptance.
2.4 Members of HFG are preferred over other applicants, all else equal.
2.5 Students who have taken BUS 141 or MGT 213 are preferred over other applicants, all else equal.
2.6 Students who are offered membership on the team are required to attend a bootcamp before any investment decisions are made.
2.7 A member of the investment team will be in good standing if he or she maintains a 3.0 GPA at UCR and regularly attends the HSIF meetings.
2.8 A replacement team member may join HSIF if an existing team member is deemed ineligible during the school year. The replacement term lasts until the start of the next academic year and is chosen by the faculty advisor.
3. Investment Decisions
3.1 Investments of the fund must meet the requirements listed in Appendix A.
3.2 All investment decisions require a research report justifying the change to the portfolio.
3.3 The student team must vote on all investments decisions.
3.4 A quorum for voting is at least 6 members or 50% of the team, whichever is greater.
3.5 Only portfolio proposals that receive 51% or more of the vote will be executed.
3.6 The faculty advisor may veto any single investment decision made by the students.
3.7 The faculty advisor is responsible for ensuring that the portfolio is more conservative in the summer compared to the rest of the year.
4. Faculty Advisor
4.1 The faculty advisor is appointed by the dean.
4.2 The faculty advisor provides guidance to the HSIF team in regular meetings.
4.3 The faculty advisor has trading authority with the brokerage firm to execute the team’s trades and has power of attorney for the HSIF.
4.4 The faculty advisor is responsible for choosing members of the HSIF team who are reliable and who have substantial academic training in investment decisions.
4.5 The faculty advisor will oversee the creation of regular HSIF reports to the Advisory Board.
4.6 The faculty advisor will ensure that the structures of the HSIF and HFG follow the best practices in the industry in creating a diversified portfolio and pursuing a high return while avoiding excessive risk.
4.7 The faculty advisor will work closely with the instructors of BUS 136, BUS 141, MGT 202, MGT 213 and MGT 252 to ensure that the most qualified students are considered for the HSIF team, to advertise the existence of HSIF and HFG, and to allow the course content of these classes to include analysis of the HSIF portfolio.
4.8 The Advisory Board may advise the dean to replace the faculty advisor if three members vote to do so.
5. Advisory Board
5.1 The Advisory Board (the Board) will consist of a Chairperson and 3 or more other Trustees who have proven expertise in wealth management or a related area of finance.
5.2 At least two of the four Board members must not be UCR employees.
5.3 The Board will meet at least once each quarter during the academic year.
5.4 The Board will review brokerage statements.
5.5 The Board will meet with the faculty advisor once a year to discuss the goals of the HSIF and methods by which the student experience of finance students may be enhanced.
5.6 The Board is responsible for overseeing the fund and has the ultimate responsibility to ensure that the investments are undertaken in a prudent manner.
6.1 Statements from the brokerage firm will be sent to the faculty advisor and shared with the team and the Advisory Board.
6.2 The HSIF team will send a report summarizing the performance and goals of the fund to the Advisory Board each quarter during the academic year.
6.3 The HSIF team will send an annual report to the Advisory Board once a year covering the period July 1 to June 30.
6.4 The annual report will be delivered to the Advisory Board no later than October 1 of each year.
6.5 The student team must present the results of its portfolio decisions to the Advisory Board once each quarter during the school year.
7. Investment Fund and Payouts
7.1 The investment fund will have no payout until the fund reaches $1 million or June 30, 2022, whichever comes first. No distributions shall be made until the Fund reaches this value or date.
7.2 Once the payouts begin, the amount will not exceed 4% a year.
7.3 The Advisory Board may vote with the support of at least two members to eliminate the payout for the following year.
7.4 The payout will be used to cover the cost of the salary of the faculty advisor.
7.5 If the payout exceeds the cost of the salary of the advisor for one course, the remainder may be used for other sources of support for the team, including such items as the cost of Bloomberg machines, trips to investment management companies, CFA exam fees, and other items that are directly related to the work involved in making sounds investment decisions.
7.6 If the fund value should reach $25,000 in value, the Fund shall cease to exist, and the Fund shall revert to a student scholarship fund titled the Hylander Student Award Fund to benefit the School of Business undergraduate students who seek a career in financial or investment industries.
8. Amending the By-Laws
8.1 The By-Laws may be amended by a unanimous vote of the Advisory Board.
1. Investment team
To ensure that the investment process be well structured and that UCR have sufficient risk management in place, HSIF will be structured around a team of 10-20 students that are chosen each year for the full academic year. These students will vote on asset allocation and individual securities as a group. The team will work with the Hylander Financial Group (HFG) members, who may assist in data collection and analysis, but who may not vote in the investment decisions of the HSIF. The faculty advisor of HSIF will also be the faculty advisor for HFG and will work with HFG to ensure active engagement with the investment team and thus that a large group of students benefit from the existence of the fund.
Students who choose securities for the HSIF must have training in finance and exhibit a strong work ethic and a high level of reliability. In order to be eligible to participate in the program, students must have completed the relevant finance classes. Among the potential candidates, preference will be given to students who have participated in HFG and have taken the trading class (BUS 141 or MGT 213). Students will apply for membership on the team and the faculty advisor will create a short list of candidates, who will then be interviewed by a group of finance professors. The team will then be required to attend a bootcamp before they begin any investing. Students must continue to be engaged in HSIF and maintain their grades or they will be replaced for the remainder of the year. The investment team is not expected to meet during the summer.
3. Investment Decisions
The investments made by the students in HSIF are restricted along several dimensions to ensure that the funds grow over time. Specifically, the asset allocation is constrained in that it must include some fixed income, avoid small cap stocks and derivatives, and be well diversified. These restrictions are detailed in Appendix A. Any proposed position requires concrete evidence in written form of due diligence conducted on the proposed investment. In practice, this means a one to three page report will be written for each buy or sell trade, where the report includes a recommendation with a discussion of the investment valuation, price target and risks. Securities and asset allocations are chosen as a group and based on majority rule. The faculty advisor has veto power on individual trades. A Advisory Board oversees the program and checks on the situation mainly through presentations by the HSIF students once a quarter. The board may replace the faculty advisor.
4. Faculty Advisor
The faculty advisor has the main goal of providing guidance to the HSIF students. This will come in the form of regular meetings with the students and with the HFG. In addition, the advisor will oversee the creation of quarterly and annual reports and check that no transaction is executed until evidence of due diligence has been provided. The faculty advisor is the sole person with authority to transact with the brokerage firm. In the event of extreme movements in the securities of the portfolio, the advisor is expected to reduce the risk of the portfolio by convening a special meeting of the HSIF team.
5. Advisory Board
The Board has the ultimate oversight of the fund to ensure its long lasting success. Ideally, the Board will have little to do in this regard, given that the students will do their work in earnest and skillfully and that the faculty advisor is the first line of defense against excessive risk or incompetence. If the faculty advisor is unable to ensure that the fund is correctly managed, the Board would be expected to take action. Another goal of the Board is to provide a way for trustees to engage with the students, by providing comments on their investment strategies and giving career advice. The Board would ideally be an important part of a bridge between UCR and industry.
HSIF will evaluate its performance on a regular basis. Written reports summarizing the performance must be generated each quarter. The HSIF team will also create an annual report that summarizes the results from July 1 to June 30. The report is due by Oct 1.
7. Investment Fund and Payouts
The goal of HSIF is to provide an educational experience to students that will help them understand wealth management. Therefore, it is imperative that the fund not be depleted, either through poor investment decisions or high payouts. Thus, the fund will have no payouts until it reaches $1 million. After that point, the payout rate will be the norm for the university (4%) and will be used to support the costs of the program. Specifically, the payout will go to paying the cost of a faculty advisor. If it ever gets to a size that supports more than the cost of a faculty advisor the funds will go to items that support the investment analysis work.
Appendix A. Investment restrictions
a. Capitalization and types of instruments
Investments in the fund should mainly be in equities and fixed income. Part (iii) of this section explicitly states instruments that may not be part of the fund’s investments.
All assets of the fund must have readily ascertainable market values and be easily marketable.
(i) Equity investments
Equity investments are restricted to the following instruments:
- Stocks that trade on the NYSE, AMEX, NASDAQ or regional U.S. exchanges
- Common stock
- Exchange-traded funds, excluding structured ETFs that use derivatives
- Stocks of companies with a market capitalization of $500 million or higher
- Stocks of companies that are headquartered in the U.S. or foreign stocks that are listed on U.S. exchanges or that trade in the U.S. as American Depository Receipts (ADRs).
(ii) Fixed income investments
Due trading costs, fixed income investments should be done mainly through ETFs. Fixed income funds may only be invested in the following:
- U.S. Treasuries and other U.S. government bonds, including TIPS
- ETFs that focus on:
- Investment-grade corporate bonds of U.S. firms
- High Yield bonds that are mainly U.S. firms
- Developed country bonds that are mainly government bonds
- Less developed countries’ government bonds
- Mortgage-backed securities
(iii) Ineligible securities, investments and trading strategies
The fund may not:
- engage in short sales or funds that mimic short sales
- buy on margin or use leveraged ETFs
- purchase mutual funds
- purchase preferred stock
- purchase private placements
- purchase municipal securities
- purchase futures, options, or other derivatives
- trade foreign currencies or purchase ETFs that mainly invest in foreign currencies
- purchase commodities or commodity ETFs, although stocks of firms that focus on commodities are allowed
- not make direct real estate investments (REITs or real-estate ETFs are allowed)
b. Diversification and allocation
The fund will maintain a diversified portfolio. To ensure that no one investment dominates the returns of the portfolio the following rules apply:
- No more than 5% may be invested in any one company’s stock (ignoring ETF holdings).
- If an investment in a stock reaches 8% of the fund value, the stock must be sold down to less than 5% of the portfolio.
- No more than 30% of the portfolio may be invested any one sector. A sector is defined as one of the eleven S&P 500 sectors and does not include fixed income.
- No more than 10% of the portfolio may be invested in any one industry.
- No more than 50% of the equity allocation may be invested in stocks with market capitalizations of less than $2 billion.
- No more than 80% of the fund may be invested in equities.
- No more than 20% of the fixed income allocation may be invested in high yield debt or less developed country bonds.
- Foreign equities and ETFs may not exceed 30% of the equity portfolio at the time of purchase.
Portfolio turnover is limited to 125% if the portfolio is fully held in cash at the beginning of the year and 75% if the portfolio is fully invested at the start of the year.
Asset allocation should have a target of: 0- 20% in cash, 60 – 80% in equities, and 20-40% in fixed income.
The performance of the portfolio will be compared to a benchmark that is 70% equities and 30% fixed income. The equity portion of the benchmark will be based on the Russell 3000 Index and the fixed income portion will be based on the Bloomberg Barclays Aggregate Bond Index. While HSIF may deviate from this 70/30 benchmark, as stated in the above asset allocation targets, the team will provide justifications for choosing an allocation from the 70/30 benchmark.