The White River Fund of White River Capital Advisors began as a jest between University of Arkansas colleagues in their Fayetteville office, then became reality in a basement during the pandemic.
Accounting professors Stephen Rowe and Caleb Rawson are behind the hedge fund, which at less than a year old has already attracted $1.5 million from six investors.
The two men described the fund as the result of years of research, launching it on April 12, 2021, in Rawson’s basement. Rowe said he worked from there during the early days of the pandemic because he has six children at home, while Rawson has no children.
Before that, Rowe said, he joked in their university office one day that they should start a fund. Doing so “gradually became less of a joke,” he said.
Now, their fund’s goal is not only to outperform the market for investors but to deliver real-world knowledge to their students and inform their teaching by keeping them engaged in the profession.
Rowe has taught at the UA for nearly six years, while Rawson has been there nearly four years. What they teach and their students overlap.
The two men have also researched together, for years, the role of financial reporting in capital formation and allocation. That led them to look into different investment strategies.
In 2018, Rowe and Rawson started researching index and exchange-traded funds, learning a lot about the process of launching different types of investment funds.
They eventually decided to start a hedge fund because it is less costly and less demanding of them as managers compared to other types of funds, and also scalable, they said.
Rowe and Rawson formed their private investment company in early 2020, then — on paper as an academic exercise — conceived a strategy for a diversified and low-risk fund.
That strategy is now the strategy of their fund: to use accounting and other data to identify companies with a competitive advantage in their industry due to access to human and financial capital.
Rowe said the timing of the fund’s launch worked out “phenomenally well,” coinciding with favorable market conditions. It is already performing at 50% above the level he expected after just nine months. The fund has broken even and is profitable, which the pair didn’t expect until at least a year had passed, he said.
Despite the fund’s early success, Rowe and Rawson’s intention is not to leave their full-time positions at the UA for this venture.
In managing the fund, they’ve learned, among other things:
- What the Arkansas Securities Department needs from and is looking for in fund managers,
- How many different regulators and oversight levels there are,
- How all the different regulatory bodies work together,
- How institutional investment differs from retail investment and
- What information can and can’t be made public.
“In academia, we can sometimes get hit for just kind of sitting in our academic towers and thinking about things as academic constructs and research and not ever actually seeing its applicability in the real world,” Rawson said. “And so actually doing something with all this research for me was this opportunity to really kind of get my hands dirty a little bit and say, ‘OK, we’ve done all this research; we have all this research; let’s go do something with it as a proof of concept.’” He said not only does this experience enhance students’ learning but also the value of his and Rowe’s research.
“It’s so easy to focus on the academic angle,” Rowe said. “But we, the more we do that, the more we lose our students. And staying engaged in the commercial environment, I think, helps keep us engaged and thinking about what we’re teaching from that perspective, which is the perspective most of our students want to have, greatly. They greatly appreciate it.”
Future plans for the fund include steady growth to a size where the two can outsource administrative duties. The professors said they would also like it to be large enough for them to engage more directly with companies in which the fund invests.
Talking to investor relations professionals would “boost our current strategy, but also gives us incredible insight that we can then pass on to our own students who hope to be in those roles in those companies in a few years,” Rowe said.
To investors, the professors offer a different perspective. “We look at the world just a little bit differently than traditional investment fund managers do,” Rawson said. “We think that there are advantages to that perspective, obviously. Otherwise, we wouldn’t be doing it. But it requires investors who are willing to kind of take a chance on that and say, ‘I’m willing to invest with people coming from an academic mindset.’”