They manage millions of dollars, control how some of the biggest institutions invest their money and have … homework? Student-managed investment funds offer future investment professionals a chance to manage real money while earning their degrees. With some schools managing tens of millions of dollars, student funds are hardly kid's stuff. Here's a look at how student-managed investment funds work.

What Is a Student-Managed Investment Fund?
In today's highly competitive finance world, with just-graduated college students vying for a diminishing number of high-paying jobs on Wall Street, schools have had to get creative to set their students apart. One way many business schools - both at a graduate and undergraduate level - have chosen to do that is by creating student-managed investment funds.

Typically, student-run funds siphon off cash from a school's endowment and give it to students to invest in a highly structured setting. From there, the design of the fund can take a number of interesting turns.

Schools often opt to make a student-run investment fund part of a class on financial investment analysis or portfolio management, giving students access to faculty members and outside advisors who have real-world fund management experience. However, even when funds are extracurricular activities, schools keep structure in place to ensure that their endowment money - in some cases as much as $62 million - is being well cared for.

In either case, positions at the fund generally mirror real-world jobs that students might encounter if they were working at a money management firm. One or two students are typically chosen as portfolio managers, responsible for the investment mix and direction of the portfolio, while the rest of the students are often assigned analyst roles in specific industries. Some schools even bring in students from disciplines outside of finance, using a marketing major as the fund's PR contact, for instance.

SEE: Preparing For A Career As A Portfolio Manager

Student-run funds also mirror real-world funds in the types of securities they can invest in. Currently, there are student-managed funds that focus on fixed-income, large, mid and small-cap equities, international equities and venture capital.

Stock Schools
The University of Wisconsin's Applied Security Analysis Program has one of the nation's biggest student-run funds, managing nearly $50 million in 2012. Other major student-run funds include the University of Minnesota's Carlson Funds, which had assets under management of more than $35 million split between a growth stock fund and fixed-income fund (as of July 31, 2012), and Ohio State's SIM fund, which managed a portfolio with a market value of approximately $11 million.

To be sure, the global economic meltdown took its toll on the performance and assets under management of student-run funds - more on that later - but overall, the funds maintained much of their cash.

Not all funds get their money from their university's endowment. Some, like Cornell's Cayuga MBA Fund or Penn State's Nittany Lion Fund actually solicit investments from qualified investors, much like a traditional hedge fund would. Others, like NYU's Investment Analysis Group, don't manage real money at all: the group runs a hypothetical portfolio with hypothetical returns.

The common thread among all of the funds, again, is structure. Regardless of assets under management or investing style, student managers have well-defined roles, funds have well-defined rules and faculty assistance is always within reach.

Historical Results
That structure has played out well for most funds. Overall, most student-run investment funds have outperformed their benchmarks by a significant margin over the long and short haul. Most are even ahead of comparable mutual funds.

Every student-run investment fund measures its performance against a benchmark, generally an index of the same class as assets that the fund invests in. The S&P 500 is a popular choice among large-cap equity funds like the Wisconsin fund, whereas LIBOR is a typical choice for fixed-income funds.

Getting in on the Action
So, with student-run investment funds becoming increasingly popular at schools with finance programs, should you join your school's fund?

Student funds are highly competitive at most schools, and for good reason - students who can lay claim to managing millions on their resumes have a significant leg up on any jobs in the money management field. Most funds require prerequisite coursework alongside an application process that includes a series of interviews and constructing research reports.

Participating in a student-run fund is also incredibly time-consuming. Some student managers spend upwards of 40 hours per week researching investment ideas, analyzing their portfolios and keeping up to speed on their assigned industries. Moreover, while many elements of student funds are designed to mirror the real world, compensation isn't - work at a student-run investment fund is on a volunteer basis.

That's not to say that it's not well worth it to spend your time working at your school's student-run fund. Besides the experience, funds often provide benefits for student managers: for instance, the University of Maryland's MBA Fund got to ring the opening bell at the NYMEX in 2008.

The Bottom Line
If your school doesn't yet have a student-run fund, that doesn't mean you're out of options. As more and more schools start to develop funds, the incentives for other schools to stay competitive with funds of their own grows. You can get a comparable experience by starting a "virtual money" investment club on campus.

While the investing learning curve can be steep, it's a lot steeper for students who manage millions of dollars for their schools while earning their degrees. A structured environment and careful faculty guidance have helped student-run funds outperform their benchmarks, and opened the doors for funds at new schools. Expect to see more funds popping up at more schools that want to keep their students competitive in the finance field.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.