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Oregon State Investment Group (OSIG)
www.oregonstateig.com
Ending Assets Managed
2007-2008 Fiscal Return
Benchmark Return
Outperformed Market By:
Range of Assets Held
Correlation to Benchmark
President
VP, Human Resources
VP, External Affairs
VP, Operations & Portfolio Manager
Key Statistics (10/1/07 to 3/31/08)
Management Team Style Box
$62,408 (1.52%) (13.36%) 11.84% $59,110 - $66,320 0.439
Justin Shanks Adam Gulledge Ryan Good Brooke Pollack
2007-2008 Fiscal Year
May 15, 2008
Value Blend Growth
La
rge
Mid
Sm
all
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
OSIG S&P 500
2007-2008 Annual Report
2
Letter From the President
May 15, 2008
Dear Members, Alumni and Friends:
In the Oregon State Investment Group, a culture of excellence, passion, and dedication is at the heart of everything we do.
Coming into a culture of high-achieving students in a competitive university environment, the expectations to perform are high. The
2007-2008 year can be characterized by nothing else than the word “hunger.”
The creation of this group has been a dream of mine that has developed over the past four years and has culminated in its
present form. Our year began with the excitement of recruiting with our first annual analyst class as a newly formed student
organization. With that our year has been marked by many successes that have set the foundation of the group as it is passed down to
future generations of Oregon State students. A few of the most notable successes for the year have been: outperforming our S&P 500
Index benchmark by over ten percentage points, competing in the RISE Conference portfolio competition, in June visiting the world‟s
top investment banks in New York City, possible taking under management a $1 million dollar portfolio for the OSU Foundation, and
creating an organizational structure that ensures the sustainability of our group‟s bright future. The vast amount of progress that we
have accomplished in just one short year is a true testament to outstanding quality of men and women that are involved with our
organization.
As I leave Oregon State and finish my term of leadership in the Investment Group, I will always hold a special place in my
heart for this school and organization. I will always remember the passion I see in the eyes of every analyst. I will always remember
the dedication our members have towards the never ending pursuit of knowledge in and outside the classroom. Mostly, I will always
2007-2008 Annual Report
3
remember the excellence we spur each other towards, while still keeping an intimate family environment founded upon respect that
bonds us together. We are truly uncommon in a common world.
Going forward, I see the future of the Oregon State Investment Group not only as being the face of the College of Business and
Oregon State University, but also being distinguished on a national level as one of the premier investment groups in the country.
Hunger, passion and dedication are the heartbeat of this organization and will propel us towards our future achievements. We will be
known for striving for excellence and continual improvement. The Oregon State Investment Group can be summed up by saying, “if
we are not growing, we are dying!”
Go Beavs!
Justin Shanks
Founder and President, 2007-08
2007-2008 Annual Report
4
Table of Contents
Mission Statement 5
History 5
Group Structure 6
Portfolio Strategy 7
Decision-Making Process 9
Asset Allocation 9
Portfolio Performance 12
Risk Metrics 12
Recent Transactions 13
Sector Outlooks 14
Performance Commentary 19
OSIG Management Team 20
2008-2009 OSIG Management Team 23
OSIG Analysts 23
OSIG Events 25
A Look Forward 28
Social Responsibility 31
Transition to New Leadership 31
A Bright Future 32
Special Thanks 33
2007-2008 Annual Report
5
Mission Statement
Through our core values of accountability,
collaboration, integrity, and professionalism, the Oregon State
Investment Group‟s Mission is to maximize portfolio returns
and provide students the opportunity for experiential learning
in portfolio management and in-depth fundamental analysis.
The Oregon State Investment Group (“OSIG,” “we,” or “the
group”) has two primary objectives:
Consistent Portfolio Management: Using a large-cap
growth strategy, the OSIG portfolio seeks long-term
capital appreciation in excess of benchmark returns by
focusing on fundamental analysis and equity valuation
methods.
Experiential Education: The Oregon State Investment
Group aims to complement classroom education with
hands-on investment experience. In addition to
performing in-depth equity analyses of potential
portfolio companies, members have the opportunity to
establish contacts with the business world through guest
speakers and company visits with the Finance Club, as
well as through interaction with the OSU and OSIG
alumni networks during various OSIG events (see
Events section).
History
The Oregon State Investment Group officially began on
October 1, 2007, the start of our first fiscal year. Previously,
we were known as the Finance Club, but split into two groups
at the beginning of this school year; one, the Finance Club, a
seminar style class with a guest speaker every week to talk on
their specific field of finance, and the other, the Oregon State
Investment Group, which manages the portfolio. The Finance
Club, which had been managing money since 2005, did not
have close the processes or depth of research that our group has
today, but paved the way for OSIG to exist.
OSIG currently manages over $60,000, of which the
original balance came from alumni donations. The OSIG
management team is responsible for running both the Oregon
State Investment Group and the Oregon State Finance Club.
Currently, our brokerage account is through Raymond
James, but we are currently switching to E*Trade take
advantage of cheaper transaction costs and also because the
Founder, Bernie Newcomb, is an OSU alumnus.
2007-2008 Annual Report
6
Group Structure
Currently, OSIG has 22 members, ranging from
freshmen to graduate students. Potential members are involved
in a professional interview process in order to make sure that
the students selected are self-motivated and excited to learn
about investments research and management. After
successfully recruiting six new analysts for the spring term, we
plan on recruiting a maximum of 10 analysts to bring the group
total to 25 members (7 members will be graduating). We feel
this will be easily achieved based on our increasing exposure
and reputation around Oregon State University.
OSIG maintains a professional setting and attempts to
imitate an atmosphere that would be found once our students
graduate and take jobs in the finance field. However, it is very
important for us to keep a very open learning atmosphere, and
we encourage friendly debate over any finance-related topic,
with the goal of having our members learn to create and back
their own opinions, as well as increasing their education of
investments.
The OSIG structure requires that every first-year
member is an analyst. Each analyst will report on and present
one stock each term through a detailed report, which is
expected to take 60-80 hours in the form of research, writing a
report, and preparing the financial statements and valuation
models. Analysts are assigned a sector, with each sector run by
a sector leader. In addition to the stock report, the sector leader
also presents a weighting recommendation for their respective
sector, which is used to help in sector allocation decisions.
Lastly, the management team, which generally consists of five
members, is responsible for the overall organization and
direction of the group. As we are very early in our life as an
organization, the management team is working mostly on
developing processes and a structure that will enable this group
to continue being the premier student-run organization at
Oregon State University.
2007-2008 Annual Report
7
In addition to the student-members, OSIG has two
faculty advisors, finance professors Jimmy Yang and Prem
Mathew. Both are integral parts of the organization and help
not only in organizational matters but act as teachers and
mentors to all of the group‟s members. OSIG relies on the
knowledge of both professors in order to maintain accuracy of
information and develop the group.
Here you can see the basic structure of the Oregon State
Investment Group:
Portfolio Strategy
OSIG currently manages a large-cap growth equity
portfolio with a long-term investment horizon. At the end of
the 2007-2008 fiscal year, this portfolio held $62,408 in assets.
Using the S&P 500 as a benchmark, we actively
manage this portfolio and aim to produce better returns than the
index, both on an absolute and risk-adjusted basis. We use
sector allocations within the equity portion of our portfolio to
increase exposure in areas that we expect to outperform the
market, and vice versa.
OSIG uses fundamental valuation models to find
companies trading below their implied values. Our models
include discounted cash flow, residual income, and relative
valuation models. Although we manage a growth portfolio, we
use these valuation models as important tools when making
investment decisions.
OSIG does not short securities or invest in derivatives,
fixed income, or real estate securities.
Note: The 2007-2008 Fiscal year was shortened due to the new Investment
Group formation. The fiscal year will run from April 1 to March 31. This
past fiscal year ran from October 1, 2007 to March 31, 2008.
2007-2008 Annual Report
8
as of March 31, 2008, net of transaction costs
Company Ticker Date Bought Shares Purchase Price Current Price Gain/(Loss) Current Balance % of Portfolio
IME 30.1%
Chesapeake Energy Co. CHK 12/8/2005 79 30.22$ 46.15$ 52.71% 3,645.85$ 5.8%
FPL Group, Inc. FPL 12/4/2006 40 54.79$ 62.74$ 14.51% 2,509.60$ 4.0%
3M MMM 12/8/2005 70 78.24$ 79.15$ 1.16% 5,540.50$ 8.9%
Sasol, Ltd. SSL 12/4/2006 63 35.86$ 48.39$ 34.94% 3,048.57$ 4.9%
Waste Management Inc. WMI 12/8/2005 120 29.16$ 33.56$ 15.09% 4,027.20$ 6.5%
Consumer Goods & Services 14.1%
PepsiCo, Inc. PEP 12/8/2005 70 59.76$ 72.20$ 20.82% 5,054.00$ 8.1%
Yum! Brands YUM 3/13/2007 100 30.84$ 37.21$ 20.65% 3,721.00$ 6.0%
Financials 12.6%
Berkshire Hathaway BRK.B 1/17/2006 1 2,975.00$ 4,472.90$ 50.35% 4,472.90$ 7.2%
CME Group, Inc. CME 12/3/2007 4 665.64$ 469.10$ -29.53% 1,876.40$ 3.0%
Goldman Sachs GS 11/20/2007 9 232.86$ 165.39$ -28.97% 1,488.51$ 2.4%
Technology 11.5%
Apple, Inc. AAPL 6/6/2006 50 60.82$ 143.50$ 135.94% 7,175.00$ 11.5%
Healthcare 15.8%
Alcon ACL 3/11/2008 18 135.25$ 142.25$ 5.18% 2,560.50$ 4.1%
Becton, Dickinson & Co. BDX 1/29/2008 40 87.35$ 85.85$ -1.72% 3,434.00$ 5.5%
Novo-Nordisk NVO 11/20/2007 56 63.39$ 69.24$ 9.23% 3,877.44$ 6.2%
Other Holdings 15.8%
iShares Emerging Markets ETF EEM 1/27/2006 30 100.87$ 134.28$ 33.12% 4,028.40$ 6.5%
Cash Holdings 5,843.91$ 9.4%
2007-2008 Annual Report
9
Decision-Making Process
Each term, every OSIG analyst researches and presents
a stock with a buy or hold recommendation. The group votes
after every presentation of a buy-rated stock with majority rule.
If the group votes to buy a new equity security, the portfolio
manager decides what amount to invest in the stock based on
sector allocations and the presenting analyst‟s
recommendation. The management team has veto power over
all transaction decisions, but will only veto a buy
recommendation under extreme circumstances, as interpreted
by the management team.
The sale of securities is done at the discretion of the
management team and the corresponding sector leader and
does not require a full group vote, although we will often
discuss the issue as a group to come to a general consensus.
Additionally, new first-term analysts are assigned update
reports on current holdings, which are used to assist in the
decision for possible sales of currently-held securities. These
reports also help new analysts learn the valuation models and
report structure with more familiar companies before preparing
a fully independent report and recommendation.
Partial sales are done at the discretion of the Portfolio
Manager for the purposes of maintaining proper asset and
sector weightings. Although faculty advisors are not involved
in the decision making, they oversee the whole process.
Asset Allocation
While considered an equity portfolio, this fund
currently holds an exchange-traded fund (ETF), representing
6.7% of assets. Although the portfolio holds this ETF, it was
bought prior to the formation of OSIG, and we are neither
currently researching nor investing further in ETFs for this
portfolio. At the end of the fiscal year, 22.4% of OSIG‟s assets
were held in four international equities, enabled by the use of
American Depository Receipts (ADRs). We have no target
allocation for international exposure, but encourage analysts to
2007-2008 Annual Report
10
look overseas for attractive investment opportunities if they are
interested.
As of March 31, 2008, the OSIG portfolio consisted of
83.9% equity, 6.7% ETFs, and 9.4% cash. Due to the structure
of our group, we have not, at any point, been fully invested
during the 2007-2008 fiscal year. The cash position has no
target allocation and tends to be 5-10% of total assets in order
to reserve cash in case of a buy decision for a stock
presentation during a weekly meeting. If there is no cash or
liquidity option, then the weekly presentations that are the
backbone of OSIG lose importance and may not be taken as
seriously by analysts.
2007-2008 Annual Report
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Within the equity portion of the portfolio, asset
allocation is benchmarked against the S&P 500 Index. For
basic analysis, OSIG divides its analysts into five sectors:
IME (Industrials, Materials, Energy, & Utilities)
Consumer Goods & Services (Consumer Discretionary
& Consumer Staples)
Technology (Information Technology & Telecom)
Financials
Healthcare
However, for more in depth research, we use the ten-sector
breakdown that the S&P 500 uses, as shown in the parentheses.
Here you can see OSIG‟s equity weightings against the S&P
500 using the 5-sector breakdown (as of close March 31, 2008)
Every term, each sector leader presents a sector outlook and
provides a weighting recommendation for their respective
sector based on their research and analysis of the sector. These
are used to determine the portfolio sector allocations, although
they are taken at the discretion of the portfolio manager and
management team, as well as in context with the specific
holdings of each sector. Often, after a sector presentation, we
will discuss as a group in what sectors we should be over and
underweighted and what changes could be made to allow these
restructurings.
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
OSIG S&P 500
Fiscal Year Performance
2007-2008 Annual Report
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Due to our presentation structure, we can only add
weighting to a sector when a stock is presented that the group
votes as a “buy.” This makes it hard to consistently maintain
proper weightings, although the portfolio manager may sell a
portion of any given current holding without conducting a
group vote to adjust the sector allocations. This structure also
creates the problem that we can not make transactions based on
proper timing, necessarily, but only when the stock is
presented. This may keep OSIG from buying stocks at the
ideal time, or at all, as votes are one-time only after each
presentation.
Portfolio Performance
During the 2007-2008 fiscal year, OSIG achieved
absolute returns of -1.52%, while the S&P 500 returned -
13.36% over the same period. OSIG outperformed the S&P
500 by 1184 basis points on an absolute basis.
OSIG‟s outperformance of the market was led by its
holdings in Chesapeake Energy Corporation (CHK), Berkshire
Hathaway Class “B” Shares (BRK.B), and Sasol Limited
(SSL). The worst performing equities, Chicago Mercantile
Exchange (CME) and Goldman Sachs (GS) came from the
financial sector, which struggled as a whole during the last
fiscal year. The following chart shows the best and worst-
performing stocks during the 2007-2008 fiscal year, and does
not include dividends, as they are currently not reinvested.
Risk Metrics
While absolute returns are the ultimate goal of the
Oregon State Investment Group, it is important that we
minimize risk in doing so. Therefore, OSIG also looks at risk-
31.1%
24.5%
14.5%
10.9%
9.2%
-14.4%
-29.0%
-29.5%
-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%
CME GS MMM NVO YUM SSL BRK.B CHK
2007-2008 Annual Report
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adjusted returns when interpreting portfolio performance. Here
is a chart looking at some risk factors and risk-adjusted returns
(these numbers are not from our previous fiscal year, but from
January 1, 2007 to March 31, 2008 due to changes in
performance tracking):
1/1/07 - 3/31/08 OSIG S&P 500
Absolute Returns 12.28% -6.74%
Beta 0.9 1
Standard Deviation 4.26% 2.99%
Sharpe Ratio 1.75% -3.87%
Treynor Ratio 8.36% -11.50%
Jensen's Alpha 17.87% -
As you can see above, not only have our portfolio
returns been stellar, but we have done so with a very low risk
profile. The combination of high returns along with relatively
low beta and standard deviation allowed the OSIG portfolio to
have great risk-adjusted returns, as shown through the Sharpe
Ratio, Treynor Ratio, and Jensen‟s Alpha.
Additionally, although they have yet to be implemented
into the portfolio strategy, we have started to look at other
metrics, including correlation and covariance, to improve our
overall risk profile and increase portfolio diversification.
Recent Transactions
During the course of the 2007-2008 fiscal year, OSIG
made 10 portfolio transactions: 5 purchases, 3 sales, and 2
partial sales. Since OSIG‟s formation in October, we have
been restructuring our portfolio in order to better match our
target sector allocations. This has caused a large amount of
transactions (1.67 transactions/month). We expect that
transactions will not be as frequent for the remaining life of
this portfolio.
The following are all of the transactions made during
the 2007-2008 fiscal year:
Date Ticker Type Amount
10/15/07 GS Buy $2,096
11/2/07 BAC Sell $2,650
11/9/07 JWN Sell $2,598
11/14/07 NVO Buy $3,550
11/19/07 MSFT Sell $3,478
12/3/07 CME Buy $2,663
1/29/08 BDX Buy $3,494
2/13/08 CHK Partial Sale $2,133
2/27/08 SSL Partial Sale $2,550
3/10/08 ACL Buy $2,435
2007-2008 Annual Report
14
Sector Outlooks
The OSIG Sector Leaders are very important to the
success of OSIG. They are responsible for being
knowledgeable about the OSIG holdings and any current
events in their respective sectors, as well as giving periodic
weighting recommendations based on their research. The
following are brief sector overviews by the OSIG Sector
Leaders:
IME – Scott Christianson
The Industrials, Materials and Energy (IME) sector had
a strong showing in 2007, with much of its success coming
from the high-performing Energy industry where OSIG has had
significant exposure. The Industrials industry, in contrast, had
a weaker overall performance, due in large part to higher
operating costs and staggering consumer demand for
manufactured goods. Our largest Industrials holding, 3M
Company (MMM), struggled in the second half of 2007 despite
having two breakout quarters early in the year. Waste
Management (WMI) followed a similar trend to MMM, with
small overall changes in its stock price to begin and end the
fiscal year.
OSIG had no exposure in the Materials sector in 2007
and was thus able to avoid the retraction in the Housing
Materials and Construction markets. Our energy exposure
came from Chesapeake Energy Corporation (CHK), a North
American natural gas producer/distributor, Sasol Ltd. (SSL), a
South African integrated oil and gas supplier, and Florida
Power and Lights, LLC (FPL) a Southern US utility provider.
In 2007, CHK made strong gains on the back of rising natural
gas prices, causing its stock to jump 31% during the year. SSL
had a strong year as well, fueled largely by the rise in energy
prices at the start of 2007. Its stock price increased from $42 to
almost $50 and has continued to rise since. FPL also had a
strong year in 2007, up only 4%, but well outperforming the
market.
OSIG‟s Industrials focus going into the next fiscal year
is tailored to companies who export goods and can benefit from
the weak US dollar. MMM and other Industrial conglomerates
should fair well in the export market despite increased
operating costs. WMI is strategically placed to pass on its
increased operating costs to consumers, while providing a
required service that consumers will be unlikely to go without.
The Materials sector should continue to see significant
2007-2008 Annual Report
15
volatility in the near future with tumultuous commodity
markets. However, certain areas in this industry are more
attractive than others, such as export-driven producers and
suppliers.
The Energy sector should continue to experience heavy
pressure from the oil and natural gas markets. Major integrated
oil producers should see a strong 2008 due to supply pressures
and continual demand requirements. CHK has multiple
exploration efforts in progress that should prove to be very
profitable in the future. SSL has seen increased adoption of its
coal to liquid gas products and should continue to see strong
growth as well. FPL is well placed in the market where it can
capture continual demand from its customers even in a
weakened economy.
Consumer Goods & Services – Michael Beall
Over the past year, the Consumer Goods & Services
sector has had a rough time, to say the least. In August, 2007
when the credit and housing markets started to deteriorate,
consumer confidence started its downward trend, recently
hitting a 16-year low. A number of factors have played into
this sharp decline in consumer confidence: declining home
values, higher gas and food prices, tighter credit markets and
rising jobless claims. All of these factors have combined to
create and atmosphere where consumers are looking for ways
to cut back on spending.
At the end of the recent fiscal year, the Consumer
Goods & Services sector accounted for 17.9% of equity
holdings, consisting of PepsiCo, Inc, and Yum! Brands, Inc.
Both companies well outperformed the market, by 12.3 and
24.3 percentage points, respectively, during the year. The
Fund is slightly underweight in this sector. Further, the Fund is
marketweight in Consumer Discretionaries and slightly
underweight in Consumer Staples.
Looking ahead, we see continued volatility and
unpredictable market patterns caused by an ailing economy. In
Consumer Discretionaries, the retail industry‟s valuations are
looking highly attractive. No doubt they are undervalued; it is
just a question of whether or not the retail market will continue
to struggle for a while with wary consumers or if a rebound is
already taking shape. Consumer Staples is recommended as a
marketweight with the Fund‟s benchmark, however it is
starting to look relatively unattractive compared to Consumer
2007-2008 Annual Report
16
Discretionaries. In general, these companies seem to be
becoming expensive.
The Fund should avoid buying or selling a company in
order to match the benchmark‟s sector weightings, seeing as
the goal of the Fund is to outperform the S&P 500, not follow
the S&P 500. Over the next year, the Fund should move to be
overweight in Consumer Discretionaries to take advantage of
bargain prices. Also, the Consumer Staples sector should
remain either underweight or increase to marketweight, relative
to the benchmark, seeing as these companies are becoming
expensive and relatively unattractive. Ultimately, the
investment strategy over the coming year is to find strong,
healthy companies that will best weather the current economic
storm and provide the most value to shareholders over the
long-term.
Technology – Jordan Plemmons
From the beginning of 4Q 2007, the Technology sector
felt the full blow of the slowing economy and poor
performance in the market. In January the technology sector
SPDR, XLK, broke its 50 and 100 day moving averages,
continuing to trail below them until mid-March. Currently, the
sector is down 8.85%, since 4Q 2007, 40 basis points below the
S&P 500. The Oregon State Investment Group portfolio,
currently underweight in technology, has significantly
outperformed in this sector. In December, OSIG realized a
28% gain on its holding in Microsoft and recently realized a
gain of greater than 200% on Apple (in a partial sell-off to
adjust the weight in the holding).
The future outlook for the Technology sector is
optimistic in the long-run; however, continued volatility is
foreseen short-term. The Consumer Cyclical sector, as well as
overall economic health, will play a large roll in the recovering
technology sector, as more than 50% of total semiconductor
consumption is through consumer industries. To minimize
volatility, the OSIG portfolio is currently underweight in
Technology and will continue to be until stability is
demonstrated in the sector. The 1Q 2008 earnings throughout
the technology sector hinted at the beginning of a turnaround,
however, according to a recent article by Forbes, “There has
been a bit of a bounce in the technology sector lately, but the
group is far from recovering. U.S. economic concerns are still
plaguing large corporate bankrolls, and [recent] abysmal
2007-2008 Annual Report
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earnings indicated that the market is a long way from putting
the current credit crisis in the rearview mirror.”
Financials – David Schmunk
The last year has been a trying time for the economy as
a whole, but the heart of the distress has come from the
Financial sector. The collapse of the U.S. housing sector late in
the summer of 2007 and the ensuing liquidity problems have
wrecked havoc on economies worldwide. The problems
originating from this situation have had significant impact on
the operations of companies in this sector including our
holdings CME Group (CME), Goldman Sachs (GS) and
Berkshire Hathaway class B shares (BRK.B).
The most glaring instance of the effect of the „credit
crisis‟ on the marketplace is the collapse of the iconic
investment banking firm Bear Sterns. The uncertainty of the
market has showed itself in other events too, such as the
multiple bank runs on E*Trade. The unease is understandable
as just about every firm in the banking industry has been
posting record losses as they continue to write off bad debt. As
a result, the cash-strapped banks are unable, or unwilling, to
make loans that would be routine under normal circumstances
and the cost of borrowing has inevitably gone up. As for our
holdings, the increased volatility has benefited CME as
investors shy away from the stock market, while the market
turmoil has reduced the profit margins for both GS and BRK.
In the wake of the global crisis spawned from the greed
of the banking industry many are calling for tighter regulation,
increased public disclosure and accountability for the industry,
especially for Investment Banking firms. The tighter regulation
will likely reduce the profit margins of many firms, but the
increased public disclosure may provide the long awaited
insight into the operations of the formerly black-box industry.
The process of implementing these controls will probably be
slowed by the bureaucratic nature of such changes. As for the
coming months, more write-downs and a high cost of capital
will eat away at any earnings for the remainder of the second
quarter, but in the third quarter Wall Street should turn itself
around and begin to recognize profits again. Banks worldwide
have reported about $300 Billion in losses so far, and while
there is more to come, the end is now in sight. The OSIG
portfolio is currently underweight in the Financial sector and
should continue to be so until the companies in this industry
are once again able to be profitable.
2007-2008 Annual Report
18
Healthcare – Casey Sande
During the past fiscal year, the healthcare sector grew
considerably within the OSIG portfolio. We increased our
sector weighting from 0% to 18.8% of equity holdings.
Subsequently, as the volatility of the recent market started to
become apparent early in the fiscal year, we chose to become
overweight in the Healthcare sector. This was based on
research expressing strong recommendations for defensive
portfolio strategies, resulting from the volatility of the overall
market. This fiscal year, OSIG acquired Novo-Nordisk A.D.
(NVO), Becton, Dickenson and Company (BDX) and Alcon
(ACL). Since their acquisitions, each of these holdings has
outperformed the market.
Looking forward, Biotechnology and Drugs sector
areas involving knees, heart, vaccines and diabetes have a
strong likelihood of growth. Demand for these products is
rising, driven by growing patient volume, which in turn is
fueled by an aging population. Healthcare Facilities look to be
relatively flat over the next year. This is looked to be a result
of slowing growth in admissions and the length of time spent
by those admitted in facilities. Similarly, the Major Drug
industry looks to lose market-share to the increasing demand
for generic drugs. However, it must be noted research predicts
that ophthalmologists are less likely to prescribe generic drugs,
which should position ACL for continued growth. The
Medical Equipment and Supplies industry, in which BDX
operates, has fundamentals that reflect long-term growth
drivers that will reach the global market and remains bullish.
Additionally, the Healthcare sector could also be
greatly influenced by the 2008 presidential election.
Democratic nominees tend to support universal healthcare
coverage, introducing negative impacts on the Major Drugs
sector. Overall, the possible changes associated with the
upcoming election display strong reasons to explore
opportunities in the generic drug sector, or possibly minimize
our exposure in the healthcare sector after the election.
Furthermore, favorable foreign currency exchange rates
have benefited the industry considerably since the beginning of
the fiscal year. Given the dollar‟s weakness against the pound
and the euro in recent quarters, some analysts expect the
foreign exchange to raise the average top line by approximately
3% in 2008.
2007-2008 Annual Report
19
Performance Commentary
The Oregon State Investment Group well outperformed
its benchmark during the 2007-2008 fiscal year (see Portfolio
Performance section). This great performance only goes to
show that the hard work that has been put in by all of OSIG‟s
members is paying off. Every analyst is motivated to see this
group succeed, driving the overall success of our organization.
OSIG‟s performance can be attributed to its detailed
analysis of every decision that is made, whether it is a group
vote for a presented stock or where to free up cash for a
standing purchase order. We maintain a very well-balanced
and well-diversified portfolio for the amount of assets we
manage. Despite ongoing great presentations, only a small
amount of presented stocks are accepted as buys by our
analysts, which goes to show the strict standards that we
maintain in our decisions. As can be seen in the chart above
(see Portfolio Performance section), we do not have any one
holding driving our returns, but outperform the market by
having a balanced group of well-performing holdings. During
the last fiscal year, thirteen of our sixteen holdings
outperformed the market. Ten of these thirteen outperformed
the S&P 500 Index by over ten percentage points.
The asset allocation decision is also extremely
important to OSIG‟s portfolio performance, and is driven by
the work of the Sector Leaders (see Sector Outlooks). It has
been proven that asset allocation is as important, if not more
so, that individual stock selection. While we try to disprove
this notion through superior selection of individual equities, it
is still very important to our overall performance, as shown
through our active allocation strategy and quarterly sector
outlook presentations. During the last fiscal year, we took
advantage of our overexposure in the Energy and Healthcare
sectors, which remained strong despite a weak economy, as
well as our underexposure in the Financial and Retail sectors,
both of which struggled greatly in the last fiscal year.
After a great first fiscal year for the Oregon State
Investment Group, we look forward to continuing our superior
performance through hard work, detailed analysis, disciplined
investment strategies and guidelines, and strict decision-
making processes.
2007-2008 Annual Report
20
OSIG Management Team
The Oregon State Investment Group was founded by,
and is currently managed by Justin Shanks, Brooke Pollack,
Adam Gulledge, and Ryan Good.
Justin Shanks, President
Justin was born in Spokane, Washington and at the age
of one moved to Beaverton, Oregon, where he lived until going
to college at Oregon State. He attended Southridge High
School in Beaverton and throughout those years was heavily
involved in both his Football and Baseball teams. His family
consists of his Father Dan, Mother Alice, Step Mother Karen
and two brothers Bob and Josh. Justin believes the two most
important aspects of his life are his faith and family.
Justin is the founder and President of the Oregon State
Investment Group, along with being President of the Finance
Club for the past two years. Justin is also a student leader with
Navigators Christian Ministry on campus, participant in the
Big Brother Big Sister Program and member of Sigma Phi
Epsilon Fraternity.
After graduation Justin plans to move to New York in
search of an Investment Banking position for a bulge bracket
firm specifically within the Financial Sector, Mergers &
Acquisitions department.
2007-2008 Annual Report
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Justin enjoys most outdoor activities including:
camping, mountaineering, hiking, rock climbing and any form
of extreme sport (especially skydiving). He also enjoys
competing in Sprint and Olympic Triathlons, salsa and
ballroom dancing, discussing theology with friends, and
reading.
Brooke Pollack, Vice President of Operations & Portfolio
Manager
Brooke was born in San Francisco, CA living in the bay
area until his family moved to Portland in 1995, where he has
lived since. After graduating from LaSalle High School in
Milwaukie, Brooke attended the University of Puget Sound in
Tacoma, WA. After five semesters, he transferred to Oregon
State University, where he is currently a senior.
Brooke joined the Finance Club in 2006. During his
time in Finance Club, Brooke served as sector leader for the
Energy and Consumer Goods & Services sectors, during which
time he analyzed Energen, Target, and SORL Auto Parts.
Brooke is still now working in the Financials sector, and most
recently analyzed American Capital Strategies.
During the past summer, Brooke worked for Riverlake
Partners, a small-middle market Private Equity Firm in
Portland. His responsibilities included performing initial
analysis on inbound buyout opportunities and industry research
and analysis in multiple sectors, including the investment
banking, construction and tradeshow markets. After
graduating this June, Brooke hopes to work for an asset
management firm to gain experience and eventually start his
own hedge or mutual fund. He is currently searching for a job
in the Portland area and will be sitting for the Level 1 CFA
exam in June.
Outside of the Oregon State Investment Group, Brooke
enjoys playing sports, especially tennis. He is also an avid
musician, mainly in jazz, in which he plays music during his
free time. Additionally, Brooke enjoys longboarding, traveling
everywhere possible, and spending time with his fiancé, Charli.
2007-2008 Annual Report
22
Adam Gulledge, Vice President of Human Resources
Adam Gulledge was born in Hillsboro then moved to
the Portland area in 1993. Adam graduated from Milwaukie
High School in 2005 and in the fall came to Oregon State
University. He is currently a junior studying Business
Administration with a minor is Psychology. Gulledge came to
the Oregon State Investment Group in the winter of 2005 as a
Technology Sector Analyst. In the spring of 2006 he became
the Healthcare Sector Leader. He is currently the President
Elect of the Oregon State Investment Group. Last year, he
started his own Online Auction Service specializing high-end
antiques and vintage collectibles. He is now working on setting
up his own investment fund, AGE Investments.
Outside of class Adam enjoys paintball, snowboarding,
golf, racquetball, hiking and an assortment of other outdoor
activities. He's a big fan of The Economist and The Wall Street
Journal. He is a big fan of The Office and follows college
football almost religiously. Adam is also an active member of
the Austin Entrepreneurial Program at Oregon State University.
Ryan Good, Vice President of External Affairs, President of the
Finance Club
Ryan Good joined the Oregon State Investment Group
in the spring of 2007 and has quickly risen to the positions of
Treasurer and Vice President of External Affairs. He also holds
the title of President of the Oregon State Finance Club, and has
held multiple jobs while in school, including an internship at
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23
First Investors Corporation in Beaverton, Oregon. This
year he will be interning with Fisher Investments and studying
abroad in Hong Kong, PRC. He plans to use the skills that he is
acquiring and building upon as an analyst and officer in the
Investment Group to excel into an entry level position in
investment banking after his graduation in 2009.
2008-2009 OSIG Management Team
In anticipation of a great 2008-2009 fiscal year, next
year‟s OSIG Management Team has been chosen and will be
as follows:
Adam Gulledge* – President
Ryan Good* – Vice President of External Affairs
Ian McCormick – Vice President of Human Resources
Michael Beall – Senior Portfolio Manager
Jay Levesque – Junior Portfolio Manager
* - denotes returning management team member
OSIG Analysts
Every member from the President to the newest analyst
is crucial in the success of the Oregon State Investment Group.
Without the effort of every individual in OSIG, this
organization would be nowhere near where it is today. Here is
every current analyst of OSIG and the sector that each operates
in:
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IME:
*Scott Christianson - Sector Leader
Ian McCormick
Ryan Good
Lars Nielson
Ryan Horton
Evan Gremillion
Clayton Smith
Consumer Goods & Services:
Michael Beall - Sector Leader
Jay Levesque
*Jaclyn Stenberg
Brandon Beall
Financials:
David Schmunk - Sector Leader
*Brooke Pollack
*Justin Shanks
Healthcare:
*Casey Sande - Sector Leader
*Dan Sellars
Denny Vo
Adam Gulledge
Technology:
Jordan Plemmons - Sector Leader
Tim Louden
*Christine Royer
Kirsten Mahoney
* - denotes graduating member
2007-2008 Annual Report
25
OSIG Events
This year, the Oregon State Investment Group has had
the opportunity to extend its education outside of the classroom
and our weekly meetings by hosting events, attending
conferences, and setting up company visits that have allowed
us to piece together what the “real” world of finance looks like.
Dennis Powell Visit
On October 1, 2007 we welcomed Dennis Powell, the
former CFO of Cisco Systems, to sit in on one of our stock
presentations. To get the best feedback possible, we presented
his company (CSCO) as a buy-recommendation. After
finishing our presentation, we were able to converse with Mr.
Powell about Cisco‟s business, getting his valuable opinions on
the state of his company as well as his thoughts on our
presentation and what we might improve on with future
valuations. While it was slightly nerve-racking, it was even
more exciting to present to Mr. Powell on his own company,
and it was an invaluable learning experience for all those
involved.
RV Kuhns
At RV Kuhns, we were able to learn about the work
done by a growing investment-consulting firm founded by
OSU alumnus, Russell Kuhns. We were treated to a
presentation on the exciting work that is done as an Investment
Consultant. We heard from young Analysts as well as Vice
Presidents on what it takes to make it in this fast-growing field.
This event was great for our analysts, as they saw that there are
other areas in investments besides equity research.
The RV Kuhns team was extremely welcoming and we
greatly appreciated not only their hospitality, but the sharing of
their extensive knowledge of the investment consulting
business.
2007-2008 Annual Report
26
Columbia Management
Columbia Management welcomed us with open arms
and provided a comfortable environment from which we could
learn. After touring their facilities, presentations were given on
portfolio management, fixed income, and trading desks. This
was a great experience for us because, among many other
reasons, most students had never seen a Bloomberg terminal.
The learning atmosphere created at Columbia Management
allowed this experience to continue to drive our members to
excellence.
Additionally, Mr. Rocky Irinaga was especially helpful
not only during this trip but in meeting with members outside
of this visit and imparting his wisdom in the form of advice on
a personal level as well as for OSIG as we prepared to start our
first year.
Investment Group Civil War
On January 25, 2008, we held the first annual
Investment Group Civil War. For this event, we traveled to
Eugene to join the University of Oregon Investment Group
(UOIG) weekly meeting. During the meeting, both groups
presented a stock, with UOIG presenting Chico‟s and OSIG
presenting Becton Dickinson, both recommended as buys.
This was a very exciting event for OSIG, as while we
are in our first year of existence, UOIG has been working for
seven years towards excellence as a group, and it was great to
see what can be accomplished through years of hard work and
dedication. After the meeting, we enjoyed a casual luncheon
where we discussed our groups and exchanged opinions on
what makes a great investment group
RISE: "Redefining Investment Strategy Education"
The RISE forum is the world‟s largest international
undergraduate finance conference in the world. The University
of Dayton hosts the conference each year and is dedicated to
bring the leaders of the investment world to speak to its
students. This year‟s speakers consisted of everyone from the
President and CEO of the Federal Reserve Bank of Cleveland,
to Chris Gardner (The Pursuit of Happiness) of Chris Gardner
International Holding Corp.
Each day, students have break out sessions with the
industry‟s leading businessmen. These sessions are designed to
be a forum, allowing students the opportunity to ask
2007-2008 Annual Report
27
professionals any questions they my have. These sessions
cover a wide range of topics, from Private Equity to Fixed
Income.
This year OSIG had the opportunity to send five of its
members to the conference. The members reported that “RISE
has a way of putting a face on the industry of finance.” OSIG
plans on sending members again next year and continuing our
participation for the foreseeable future.
D.A. Davidson Presentation
On April 19, 2008, we were delighted to welcome two
analysts from D.A. Davidson‟s Lake Oswego branch. Greg
Thomas and Matthew Yun spoke on what Investment Banking
is, how to get into the field, and described what it would be like
as a new analyst working at D.A. Davidson. This presentation
was a great look away from asset management and into a field
that many OSIG analysts were not as familiar with. Mr.
Thomas and Mr. Yun were extremely knowledgeable in their
presentation as well as during the following Q&A session.
Following this event, many upperclassmen were able to
make connections and pass along resumes. We hope that this
is the beginnings of a recruiting pipeline with D.A. Davidson,
and look forward to welcoming them back on campus next
year.
College of Business Centennial Alumni and Business
Partner Awards Dinner
On May 1, 2008, four members of the Oregon State
Investment Group had the opportunity to represent the group
and present to the Dean‟s Circle of Excellence. This
presentation was a part of the College of Business‟s Centennial
Alumni and Business Partners Awards Dinner, an all-day
event. These members had the opportunity to show valuable
members of the OSU business community just what it was that
we had been working so hard on for all this time. After leaving
the audience awestruck with our great performance, we had a
chance to talk and network with the business professionals who
attended the presentation.
Also included in the day was an exciting lunch with
Tod Perkins, an OSU alumnus, and Investment Banking
Managing Partner and Partner with JP Morgan in New York, a
tour of the Montgomery Park building, including a Q&A
session about commercial real estate investing, as well as the
main event, a reception and dinner during which the members
2007-2008 Annual Report
28
who presented earlier were able to network with the College of
Business‟s most successful and accomplished alumni. This
was an amazing event, and we look forward in hopes of
participating next year.
Annual Banquet
This spring will be our Third Annual Finance
Appreciation Banquet. This banquet is a way to say thank you
to the staff, students, and professionals who have been
instrumental in the success of the finance department and the
student organizations within. This year‟s banquet will be held
on May 15th
and will be an opportunity for the Investment
Group to continue building its relationship with the College of
Business as well as alumni and other finance professionals who
have helped the Investment Group and Finance Clubs become
what they are today.
New York City
On June 16th
, 2008, the Oregon State Investment Group
will send 10 members to embark on the First Annual New
York Trip. The purpose of this trip is to allow students the
opportunity to network for possible future employment.
Included into the trip will be the privilege of touring Wall
Street with some of New York‟s top financial firms including
Goldman Sachs, JP Morgan, Fortress Investments, and Pequot
Capital Management. Along with our visits, we will have to
opportunity to attend an OSU Alumni Dinner with some of
Wall Street‟s most prestigious OSU graduates.
Our hope is that this trip will be profitable for all who
are attending it, as well as be a capstone to their education.
This will provide priceless networking opportunities, and we
hope to make event an annual trip for our members to enjoy for
years to come.
In addition to all of these great events, we are either
planning or hope to attend many new events in the future,
including a trip to Nike headquarters, visiting a prestigious
Private Equity Conference, and attending the Berkshire
Hathaway Annual Shareholder Meeting in Omaha, Nebraska.
A Look Forward
Oregon State Investment Group‟s founder, Justin
Shanks, once said to the group, “If we are not growing, we are
dying.” This statement was not focusing on the quantity of the
group‟s members, but their quality and increasing group
2007-2008 Annual Report
29
identity. Each term, every member is expected to refine and
perfect their valuation and presentation skills, forcing
themselves to continually improve, not only in the accuracy of
their valuations, but also in the quality and detail of the reports
and presentations. Not only does this improve the knowledge
and expectations of the group as a whole, but it improves each
analyst, making them more ready for the responsibilities of a
fast-paced job in the finance world, a primary objective for the
Oregon State Investment Group
The goal behind continuous group improvement is to
take the organization to a new level, qualified to compete with
student-led investment groups not only across the nation,
around the world. The Oregon State Investment Group‟s aim
is to be the best, and most professional, student run investment
organization, providing best-in-class investment performance.
Achieving this aim requires that we exercise uncompromising
standards of superiority and perfection in every aspect of our
organization.
During the past year, we have executed a major project,
taking the Oregon State Finance Club and creating the Oregon
State Investment Group as a spin-off which focuses on asset
management and equity research, allowing the Finance Club to
focus exclusively on professional networking. The integration
of the Investment Group is complete, and the infrastructure for
our future growth is in place.
Portfolio Restructuring
On June 5, 2008, the Oregon State Investment Group
Management Team will be presenting to the OSU Foundation‟s
Investment Committee. The goal of this proposal will be to
manage $1 million of the Foundation‟s assets. If we are
successful in this attempt, the Oregon State Investment Group
will be managing approximately $1.1 million in assets by Fall
Quarter of 2008, including a $1 million dollar endowment fund
from the Oregon State University Foundation and twenty-
thousand dollars from Oregon State University‟s English
Department in addition to our current portfolio.
International Fund
Due to the acquisition of these new portfolios, Oregon
State Investment Group‟s current Large-Cap portfolio will be
liquidated and transformed into an international equity
portfolio under the management of next year‟s Junior Portfolio
Manager, Jay Levesque.
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30
This portfolio will initially be composed primarily of
international Exchange Traded Funds (ETFs) and aligned with
the geographic and sector allocation of its benchmark. As the
analysts research and present international companies, the
ETFs will be replaced with equities in the form of American
Depository Receipts (ADRs) until the portfolio is transformed
into a 100% equity portfolio.
The International Fund will be comprised mostly of
large-cap equities due to the availability of information for
smaller companies overseas. However, analysts are
encouraged to research companies of any size that provide
adequate information.
Recently, we have agreed to manage $20,000 for the
Oregon State University English Department, a very exciting
acquisition for OSIG. These funds will be a part of this
International Fund and will be managed in hopes of raising
additional money for English Department scholarships.
Therefore, the International Fund will be structured similar to a
mutual fund and use Net Asset Value (NAV) for deposits and
withdrawals of English Department money. Additionally, now
that we have this set in place, we will be able to manage any
other money, scholarship-based or not, without have to
restructure our portfolio through the NAV-style International
Fund.
Endowment Fund
If our proposal and presentation are convincing, as
mentioned earlier, the Oregon State Investment Group will
manage $1 million in assets from the Oregon State University
Foundation, under the leadership of next year‟s Senior
Portfolio Manager, Michael Beall. The funds managed would
be in the large-cap portion of the Foundation‟s assets and used
for not-for-profit purposes. The new portfolio would start out
primarily composed of sector ETFs, strategically aligned and
weighted against the sector allocation of the Fund‟s
benchmark, the S&P 500. As with the International Fund,
qualified equities will slowly replace the ETFs until the
portfolio is 100% equity.
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31
Social Responsibility
Ultimately, the objective of all portfolios managed by
the Oregon State Investment Group is to seek capital
appreciation. However, as a group, we have decided to invest
in companies which are socially responsible.
OSIG believes that social and environmental issues are
important to the ultimate performance of any company and
investing in companies who take these responsibilities
seriously will ultimately help us achieve our primary goal of
long-term capital appreciation. Also, as future business
professionals, we feel it is important to set to set an example as
a group to be socially and environmentally responsible in our
investing. Not only are these issues important to OSIG
members, but corporate responsibility in all forms is becoming
of more importance to corporate American and someday with
be a standard of required business practices. Therefore, if
OSIG is to manage the $1 million allocation of the
Foundation‟s money, this resulting portfolio, with the OSU
Foundation‟s approval, will only invest in companies that we
deem to be socially responsible.
Transition to New Leadership
The Oregon State Investment Group‟s current members
are extremely motivated to create a great organization that will
span generation upon generation of the most intelligent and
hard-working finance students in the OSU College of Business.
To ensure that the organization lives on beyond the current
leadership team, we have taken steps to create a structure and
processes that will continue to make the Oregon State
Investment Group the face of the College of Business. First,
2008-2009‟s management team is already in place, as shown
earlier. This team was chosen through an application and
interview process to be the group that the current management
team thought could best carry on the OSIG tradition. Working
to prepare this group for next year has only led us to reaffirm
our complete faith in this new management team.
Another major step that we have taken to prepare for
OSIG‟s future is the creation of the new Oregon State
Investment Group Analyst Guide. This extensive document,
spearheaded by next year‟s President, Adam Gulledge, will
cover everything that new Analysts should know and learn
during their first term with OSIG. Areas covered in this
document include Code of Ethics, Organizational Structure,
2007-2008 Annual Report
32
Presentation Guidelines & Format, and DCF & Relative
Valuations. This document will help to prepare future analysts
for the Oregon State Investment Group based on the principles
and high expectations that have been created in OSIG during
the last year.
A Bright Future
Achieving our aim as an organization to be the best,
and most professional, student-run investment management
organization requires that we exercise uncompromising
standards of superiority and perfection in every aspect of our
organization. However, the Oregon State Investment Group‟s
true goal is to be the best student-run organization of any kind
in the United States. We now have our infrastructure in place
and have made great strides in building the group towards this
goal over the last six months. We look forward to the bright
future of the Oregon State Investment Group, and as an
organization of passionate, motivated individuals, we are
excited to rise to the top.
“In business everyone is out to grab, to fight, to win. Either you
are the under or the over dog. It is up to you to be on top”
- Alice Foote MacDougall, American Businesswoman
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33
Special Thanks
Countless professionals, faculty, and students have
supported the Oregon State Investment Group and its members
from day one. Without everyone‟s support, we would not have
been able to perform as well as we have. Below are those who
have had the biggest impact on our success in 2007. Without
these outstanding members of faculty, and professional and
alumni supporters, the Oregon State Investment Group would
not be where it is today.
Robert Zagunis, CFA
Principle, Portfolio Manager
Jensen Capital Management
Mr. Zagunis‟ track record for giving back is
exemplified by his support for the Oregon State Investment
Group. Without his and others contributions, managers and
members of OSIG would not have the opportunity to invest in
a real portfolio. Mr. Zagunis is also involved as a guest
lecturer and speaker for the Oregon State Finance Club.
Robert Pace
Managing Director, Partner
Goldman Sachs
Mr. Pace is an alumnus of Oregon State University and
has had great success on Wall Street. His success is being
shared this year OSIG in his support for the first annual New
York City trip, and for the College of Business overall with his
support for Finance Students Studying Abroad.
Steve Schauble
VP and CFO, OSU Foundation
Oregon State University
Mr. Schauble‟s experience with other student run
investment groups at previous schools has provided him the
cornerstone in which to help us develop our organization. He is
currently working hard to facilitate a management agreement
between OSIG and the OSU Foundation for a $1 million
portfolio.
2007-2008 Annual Report
34
Ilene Kleinsorge, Ph.D
Dean, College of Business
Oregon State University
Dean Kleinsorge‟s excellent leadership and networking
qualities have proven invaluable to our organization. She
continually supports both the Oregon State Investment Group
and the Oregon State Finance Club by leveraging her
friendships with professionals and alumni. Through Dean
Kleinsorge, numerous opportunities have presented themselves
for both organizations.
Aaron Escobar
Director of Development, College of Business
Oregon State University, OSU Foundation
Mr. Escobar‟s ability to encourage involvement from
professionals and alumni has helped to expedite not only the
OSU Foundation‟s partnership with the Oregon State
Investment Group, but has also provided for many talented
guest speakers and mentors for the Oregon State Finance Club
as well.
J. Jimmy Yang, Ph.D
Assistant Professor of Finance
Oregon State University College of Business
Professor Yang is a mentor and friend of both the
Oregon State Investment Group and the Oregon State Finance
Club. His experience in finance and investments is being
shared generously with both organizations. His unselfish
willingness to assist in all matters pertaining to both
organizations, while also maintaining an active professor status
cannot be thanked enough.
Prem Mathew, CFA, Ph.D
Assistant Professor of Finance
Oregon State University College of Business
Professor Mathew is a mentor to students in the Oregon
State Investment Group inspired and motivated to succeed.
Both he and Dr. Yang dedicate themselves to weekly meetings
and events for OSIG. His certification as a CFA is paying off
not only for him as a respected professor, but also for students
in the form of a generous scholarship for those interested in
pursuing the CFA designation under his guidance. His support
is highly appreciated.