Learning by doing – Jones School finance students manage $5 million for Zions Bank

The closest that most students come to hands-on experience in high finance is an internship or summer job with investment banks or mutual fund firms. But a group of students at Rice’s Jones Graduate School of Business didn’t have to wait for a summer job or internship: They were given $5 million to invest in the bond market as part of their classroom work.

The Fixed-Income Practicum course meets weekly in the Jones School's El Paso Corp. Finance Center and uses Zions Bank's state-of-the-art online bond store and auction platform to buy and sell bonds. Photos by Jeff Fitlow

The five MBA finance students in the Fixed-Income Practicum course received the funds temporarily from Salt Lake City-based Zions Bank, which operates 480 full-service banking offices in 10 Western and Southwestern states, including its affiliated Amegy Bank in Houston, and is one of the 50 largest banking companies in the U.S. The students have six months, Oct. 1 to March 31, to invest the money.

The opportunity was brought to the Jones School by Rice trustee Doyle Arnold ’70, vice chairman and chief financial officer of Zions, said Jill Foote, the course’s instructor and a senior lecturer in finance.  Zions currently offers this program to only four other schools in the world: Utah State University, Brigham Young University, Westminster College and University of Oxford. It was conceptualized by Zion’s David Hemingway, executive vice president and chief investment officer.

“Doyle, of course, loves Rice and is a very active alumnus, and he wanted us to be one of the schools,” said Foote, who spent 12 years on Wall Street as an executive with Goldman Sachs. “This is our inaugural class. It’s very exciting, and I must say, it’s very challenging, in a good way.”

Only top-performing students with prospective careers in a related finance field were allowed to participate and manage a fixed-income investment portfolio in real time. Under the guidance of Foote and Zions professionals, the student managers Jeff Bridge, Mitchell Currie, Doug Dawson, Ryan Leary and William Hoy have spent the course’s first months developing and implementing portfolio strategies, analyzing and making investments, and monitoring and managing risk and return in the portfolio. In accordance with Zion’s investment policy, permissible investments include treasuries, certificates of deposit, agency, municipal and corporate bonds as well as mortgages with a maximum maturity of 10 years.

From left, Jones School students Ryan Leary, Jeff Bridge and Mitchell Currie work together closely in managing the course's fixed-income investment portfolio in real time.

“The majority of investment management career opportunities today are in fixed income,” Foote said.  “This class provides a unique opportunity for students to develop the skills necessary to help propel them into these careers.”

Meeting weekly in the Jones School’s El Paso Corp. Finance Center, the students use Zions Direct, Zions’ state-of-the-art online bond store and auction platform. There are thousands of offerings for the students to bid on and sell to meet their objectives. By March 31, the portfolio must be liquidated and all funds returned to Zions. Additionally, if the portfolio value falls by more than 5 percent, Zions will require immediate liquidation.

“While much of news media focus is on equities, nearly all state, county and local governments in the country as well as most companies depend on issuing debt as part of their financing,” Arnold said. “We are very pleased to provide an opportunity for the future treasurers of these entities, as well as investors, now at the Jones School to get hands-on experience with fixed income securities.”

For Hoy, a student in the Professional MBA program, the course provides an opportunity to venture into an unchartered territory. “I think that when a lot of people think of investing, they think of buying stocks and the big-name stocks that they know,” Hoy said. “Not a lot of people think about buying individual bonds and may have no clue what’s actually involved in doing that, myself included, coming into this. That was a huge driver for me to understand [bonds] at a detailed level.”

While the bond market is a complicated field, it has not held the students back from tackling the intricacies, guided by the proverbial “buy low, sell high” strategy.

Course instructor Jill Foote spent 12 years on Wall Street as an executive with Goldman Sachs.

“Some of the policies that we have to follow say that our buys have to be investment-grade securities, so we can’t take anything too risky,” said Currie, a full-time MBA student. “We also have to liquidate the portfolio on March 31, so as part of our decision-making process, we looked at bonds to see if they mature before that date and [make sure] that we don’t take on any risk of trying to resell them into the market. Whereas for the longer-term bonds, we have to make sure we have enough liquidity so we don’t lose too much on the [bid-ask] spread when we go to sell. We’re going to see how that plays out ultimately, but that drove a lot of the decision-making process at the beginning of the class.”

While the students don’t get a commission if the investments are profitable, the learning experience is priceless, Foote said. “Completely managing a real-world bond portfolio is an extremely valuable experience for our students, and we are grateful to Zions for this rare opportunity to provide our students with this form of work experience in an academic setting.”