Research shows that finance students learn best when managing real money, which is why Queensland’s Griffith University has allocated $250,000 towards an investment fund that will allow third-year and Master of Finance students to trade on the ASX. Industry Moves speaks with Associate Professor, Robert Bianchi, about the process for setting up the fund, the decision to invest in only socially responsible companies and where he sees the future of the industry.
Q&A with Griffith University's Associate Professor Robert Bianchi
What prompted Griffith University to launch this investment fund?
We want our students to employ actual money, use actual data and gain actual experience. The fund will invest in ASX listed companies that are socially responsible. Our students already have access to Bloomberg terminals in our Trading Rooms at Nathan and Gold Coast campuses; it was a natural extension to provide our students with the opportunity to manage a share fund by using our teaching and research infrastructure.
Student investment funds have been operating in U.S. universities for decades but this concept is relatively new in Australia. Research shows finance students learn from market-based simulations; however, they tend to make unrealistic decisions when managing ‘fake’ money. When students manage actual money, they feel the weight of responsibility on their shoulders and they make prudent investment decisions. This new learning initiative will deliver unparalleled practical experience for students.
What is the expected life-time of this fund?
To earn the equity risk premium in Australian shares, the Griffith student investment fund has an investment-time horizon of at least 10 to 15 years. The student investment fund will operate into perpetuity.
"When students manage actual money, they feel the weight of responsibility on their shoulders and they make prudent investment decisions."
What was the process behind setting up the fund? Where did the initial funding come from?
Initially, we proposed the idea to the senior management team, as this was a new concept for them. We reviewed the design and structures of various types of student funds. To ensure the proper governance process, we collaborated with our various stakeholders including Queensland Treasury and the Queensland Department of Education and Training (DET). We have high levels of confidence in the ability of our students at Griffith and the management of this fund is a natural extension of an experiential learning environment. The initial $250,000 funding comes from Griffith University itself.
The University has said that the whole $250,000 will be invested into socially responsible companies. What is the criteria for these companies to be deemed socially responsible?
‘Socially responsible’ is a very broad term and reflects the move towards responsible investing. The students will determine whether a company is socially responsible, and all investments require approval from a governance committee at Griffith University. There are no straightforward answers to whether a firm is socially responsible or otherwise; there is complexity with this type of investment decision-making, and we want to expose our students to these higher-order levels of critical thinking.
Do you think we will see a rise in ethical investments as the new wave of ‘ethically conscious’ financial services professionals enter the workforce?
The Griffith students of today will be the leaders of the future in the finance industry. As part of their education, our students learn how to value ASX listed companies and evaluate their environmental, social and governance (ESG) characteristics. I do not see a new wave of ‘ethically conscious’ finance professionals but, rather, I expect the ethical dimension will be embedded in all investment decision-making across Australia. By way of example, nearly half of Australia’s largest 50 superannuation funds currently employ ESG practices. I humbly believe the future of the Australian financial services industry is in good hands.
Is this the first time that an Australian university as offered such a ‘real life’ investment experience?
Some Australian universities already offer investment funds; however, the Griffith student investment fund is the largest in Queensland and is the first in Australia with an explicit ‘socially responsible’ or ESG investment style.
Who will make up the Investment Committee that will monitor the students?
The Investment Committee will comprise of industry professionals in the investment management industry. These finance professionals will provide advice, guidance and mentorship to the students.
"I humbly believe the future of the Australian financial services industry is in good hands."
How much freedom do the students have in making decisions? For example, if a student was about to make a risky choice that might not pay off would they be steered in the right direction or left to learn from their mistakes?
As a starting point, the fund’s investment universe will be shares in the Dow Jones Sustainability Australia Index (DJSAI). Through our Griffith governance committee, the students will develop an ‘adjusted investment universe’, which excludes companies that do not meet the student’s criteria of what is socially responsible. This ‘adjusted universe’ will be the fund’s benchmark. Each share in the benchmark will have its own portfolio weighting. Our students will construct underweight or overweight positions in these shares based on their adjusted benchmark weight +/- 2%. This position limit is a risk-management tool that limits underperformance caused by suboptimal decision-making. Over the long term, we expect our student investment fund to match and/or potentially outperform its benchmark.
Can you tell us more about the scholarships that will be created using the profits from the fund?
Over time, the shares in the fund will generate dividends (i.e. cash inflows) that will be used to fund Griffith Business School (GBS) scholarships for individuals experiencing financial hardship. We want our third-year finance undergrads and Master of Finance students to make investment decisions that benefit others in the Griffith community that may need a helping hand.
With your background in finance, and having taught finance students over the last 11 years, what do you think are the biggest changes that we will see in the financial services industry over the next ten years?
It is clear that highly repetitive jobs, with low cognitive skills, will be automated with new technologies. Whilst some people may consider this as ‘digital disruption’ or the ‘end of the world’, it is important to note that new technologies have been replacing manual work since the late 1700s (the Industrial Age). Today, the financial services industry needs to think carefully about its value proposition to clients (in terms of technology and current employee skills). Financial history suggests some firms will adapt while others will die.
What has the response been from students so far?
The new course begins in Trimester 1, 2018. The students at Griffith University are very enthusiastic about the fund and are eager to enrol. There is nothing better than seeing students who are keen in studying a new course! The new student investment fund will be a transformative learning experience for everyone!
Watch the promotional video below!
Photos of students supplied by Griffith University.