WHAT IS FOUR HORSEMEN INVESTMENTS (4HI)?


Four Horsemen Investments is a not-for-profit business incorporated in the state of Washington.  We are not a club, and we are not officially affiliated with the University of Puget Sound.  Our independence allows us to invest as we choose, in accordance with the Investment Policy Statement that each group writes for itself.  Our alums and advisors help with this process.  As you become familiar with this handbook and with our organization, you will learn about the sorts of norms that guide our investments.


Our fundamental goal is to enhance members’ finance education.  We summarize our mission as:




Four Horsemen Investments encourages students to expand their finance  education  through


experience:      putting investment principles to work by managing real money in unique portfolios;


research:          joining the academic conversation through original research; and


outreach:         applying knowledge by helping others.




Our primary activity is the management of a peer-to-peer (P2P) loan portfolio, housed on the Prosper and Lending Club platforms.  Management of this portfolio—for example, monitoring of past loans, screening borrowers for new loans, developing lending criteria—gives students a unique opportunity to manage a debt-focused student-managed fund (SMF).  We believe that 4HI’s is the only P2P SMF in the world.  However, given the recent changes in the P2P market—primarily the increasing presence of institutional investors, which limits our access to loans—we have established a traditional equity portfolio.  Members of the 2016-17 cohort opened our equity account and established our initial criteria, which the 2017-18 group should flesh out as ongoing guidance.  We could use this portfolio to explore stock investing and option hedging (long puts and covered calls only).  We could work with students in the valuation and portfolio management courses (BUS437 and BUS438, respectively) to help identify promising long-equity opportunities.


We also have several other types of assets in our portfolio.  We have a Treasury Direct account that allows us to buy Treasury bonds, notes, and bills.  T-bills are an alternative to our BECU bank products (savings account and CDs), allowing us to park our cash for a few months until we need it.  Savings products are not investments, though—their purpose is complete safety, not return generation.  Therefore, we should keep such holdings to a minimum.



We also hold cryptocurrency—Bitcoin and Ethereum.  This part of our portfolio was established in 2017 with a gift from alum Ryan Tate of 2 bitcoins.  The initial gift appreciated rapidly. more than doubling in value over the first six weeks.  Given this volatility and potential, this part of our portfolio needs to be monitored carefully.  The 2016-17 group established a sell discipline that requires us to sell cryptocurrency when the coin portfolio gets above $2,500 in market value; the account is then sold back down to $2,000.  Currently, this rebalancing is handled by the president.  The treasurer should work closely with the president to effect these rebalancing trades.  All trades must be immediately reported to Livingston, along with details of the dollar amounts and number of coins involved.  (See the treasurer’s section of this handbook for more details.)


You can learn more about our portfolio in the performance update, included in this handbook.  The treasurer will be responsible for ongoing maintenance of the spreadsheets tracking our performance.



In addition to managing portfolios, we also conduct academic research.  We strive to complete at least one study per year and to have that study presented at an academic conference by the member(s) who wrote it.  Here are a few comments about these projects:



Presented by Lynda S. Livingston, University of Puget Sound and Four Horsemen Investments


We incorporate skewness and kurtosis into an optimization process for a unique student-managed fund.  Unlike the vast majority of such funds, which hold only equity, our fund includes REITs, cryptocurrency, and peer-to-peer loans.  Adding these unusual asset classes allows our students to explore portfolio management concepts more generalizable than just picking stocks.  While most of our assets cannot be recommended based solely on traditional mean-variance analysis, they nonetheless offer beneficial contributions.  Using polynomial goal programming to incorporate higher moments in our optimization, we find that asset classes dominated in mean-variance space can make meaningful contributions to the full risk-return profile of the portfolio.  In particular, we find that including cryptocurrency and peer-to-peer loans can increase the skewness and decrease the kurtosis of our portfolio. 

Dr. Livingston wrote this paper to asses the company's “experience assets” at the 26th IBFR Global Conference for Business and Finance Research in Las Vegas, NV. This project was an extended to Livingston’s, Yeun’s, and Lee’s research “Peer-to-Peer Loans, Cryptocurrency, and REITs in a Student-Managed Fund.” This paper utilizes alternative methods of risk analysis to assess the impact of these assets for three different portfolio weighting schemes.

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In 2009, students at the University of Puget Sound started a unique student-managed fund focused on peer-to-peer (P2P) loans.  Using the online Prosper and Lending Club P2P platforms, students are able to screen and evaluate peer borrowers’ applications, which they may choose to fund with as little as $25 each.  The consumer-oriented nature of the loans and the small investments required made P2P lending an attractive option for a small student portfolio managed outside an endowment.  In this paper, we describe our experience running this fund, which has consistently returned about 6% per year.  We also discuss the potential for continued good performance, which is clouded by our increasing default rate and decreasing access to new loans.  Institutional investors have moved in—and overrun—the P2P space.  We conclude that the market is no longer as accessible or potentially profitable a mechanism for student experiential learning as it was when we began our fund.

This paper is the first half of our comprehensive review of our P2P portfolio.  We focused on developing a logic model to describe defaults.  (Members used this model to guide their investing during the 2016-17 school year; later studies will be able to assess its efficacy.)   Andrew Crosby presented this paper at the 11th International Conference of Interdisciplinary Social Sciences in London, England in August of 2016.  We hope to complete the review process during the summer of 2017, so that the paper will be published by the end of 17.

Second Half of The Study Above:

“Returns and Attribution from a Student-Managed Peer-To-Peer Loan Fund.”

Accounting and Taxation (forthcoming for 2017)

Many business schools run equity-based student-managed funds.  However, few extend that experiential learning opportunity to incorporate fixed-income assets.  In this paper, we report the seven-year results from a unique student-managed fund of peer-to-peer (P2P) loans.  The minimum investment in these loans is low enough to allow even the smallest schools to offer students opportunities for meaningful, ongoing credit analysis.  Our results show that P2P returns can be high, that defaults are significant, and that active management can add value in this market.  They also support our contention that the institutional money now swamping the market is making P2P lending less attractive for retail investors.

“Could Peer-to-Peer Loans Substitute for Payday Loans?”

Accounting and Taxation, Vol. 4, No. 2, 2012, p. 77-94.

Many consumer advocates consider payday loans—short-term, uncollateralized loans with high interest rates—to be predatory.  The demand for short-term funding has spurred the quest for a substitute, an effort encouraged and supported by regulators like the Federal Deposit Insurance Corporation.  In this paper, we evaluate the potential for online peer-to-peer markets to provide this alternative.  We conclude that while certain features of peer-to-peer loans would be well suited (such as their longer terms, larger amounts, and multiple payments), the longer time to fund and the required minimum credit scores for borrowers present meaningful hurdles.

Livingston wrote this paper to evaluate the potential for the P2P market to provide short-term funding to people who might otherwise turn to payday loans.  She presented it at the Global Conference on Business and Finance in Honolulu, Hawaii in January, 2012, where it won the outstanding research award.  It was published later that year in the journal Accounting and Taxation.

“Students and Small-Dollar Credit”

The International Journal of Interdisciplinary Education Studies, Vol. 7, 2013, p. 69-86.

We present a student survey based on a recent Treasury convening on uses and abuses of small-dollar fringe credit.  Financially inexperienced students may be particularly vulnerable to negative outcomes from this type of credit.  Using a sample from a small liberal arts university, we find that our students are highly unlikely to use fringe products like payday loans.  The news is not all good, however: while our students are very familiar with mainstream credit and savings products, they are almost entirely ignorant of their costs.  Should less advantaged students display this sort of blasé attitude when transacting in the small-dollar markets, they could easily fall into a fringe-loan “debt trap.” 

Livingston wrote this paper based on the initial results of our student payday-loan survey, which she and Spencer Kadas started in 2011.   She presented it at the Seventh Annual Conference on Interdisciplinary Social Sciences in Barcelona, Spain in June of 2012.  It was published in The International Journal of Interdisciplinary Social Sciences in early 2013.

“Small-Dollar Credit Use in Underserved Populations: Evidence from Tacoma, Washington”

During the 2012-13 school year, Livingston and Hiroki Tokuyama (along with other members) continued this student fringe-lending survey, expanding our sample to PLU.  Tokuyama presented the resulting working paper, “Small-Dollar Credit Use in Underserved Populations: Evidence from Tacoma, Washington,” at the Global Conference on Business and Finance in San Jose, Costa Rica in May, 2013.  An abbreviated version of the paper was published in the conference proceedings.  Sam Anders helped complete this work in 2013-14 (see below).



“Using a Peer-to-Peer Student Managed Fund for Community Service” International Journal of Interdisciplinary Social Sciences, Vol. 5,

Issue 10, 2011, p. 197-210.

Microfinance is spreading rapidly from its not-for-profit roots.  For example, peer-to-peer lending sites such as bring microlending to retail investors and small borrowers.  In this paper, we describe our use of the Prosper site to host our student-managed fund, which we believe is the only such fund in existence.  We then describe our upcoming project to use the fund as a platform for community service—specifically, to develop an alternative to fringe loans.

Lynda Livingston, Thomas Glassman, and C. Shane Wright wrote this paper in 2010, and presented it at the International Conference on Interdisciplinary Social Sciences in Cambridge, U.K. that August.  It was published in early 2011 in the International Journal of Interdisciplinary Social Sciences.  In this paper, we link our P2P portfolio explicitly to its roots in traditional microfinance, and describe how we envision using our fund to create alternatives to payday loans.

Running an investment fund allows students to experience real-world challenges first-hand, enhancing their learning.  However, most of the funds that currently exist are relatively large, equity-focused portfolios; few funds concentrate on debt, since fixed-income investing usually requires larger investments and higher expenses.  In this paper, we present a new type of fixed-income student managed fund: a peer-to-peer lending portfolio, run through the Prosper Marketplace electronic platform.  Such portfolios can be hundreds of times smaller than even the smallest traditional student-managed funds.  Using Prosper, business programs of almost any size can offer students the experience of running an investment fund.

Thomas Glassman and Lynda Livingston wrote this paper in 4HI’s first year.  It details our initial motivations for the fund, as well as the early loan criteria.  Glassman presented this paper at the Global Conference on Business and Finance in San Jose, Costa Rica in May of 2009, winning  the outstanding research award and being recognized for the best paper in his session (Business Education).  An abbreviated version of this paper was published in Global Conference on Business and Finance Proceedings, Vol. 4, No. 2, 2009.  More importantly, the full version was published in the academic journal Business Education and Accreditation.

“Creating a New Type of Student Managed Fund Using Peer-to-Peer Loans”

Business Education and Accreditation, Vol. 1, No. 1, 2009, p. 1-14

“Peer-to-Peer Loans, Cryptocurrency, and REITs in a Student-Managed Fund”

Presented by Winnie Lee and Darren Yeun. Research by Winnie Lee, Darren Yeun, and Lynda Livingston

Our Research Chair for 2017-2019, Winnie Lee, and Treasurer for 2018-2019, Darren Yeun, presented their research on the performance of our company’s “experience assets” at the 26th IBFR Global Conference for Business and Finance Research in Las Vegas, NV. This project was an extension to Livingston’s paper, Skewness, Cryptocurrency, and Peer-to-Peer Loans: An Asset Allocation Exercise for a Unique Student-Managed Fund. Lee and Yeun utilized a series of methods to determine the performance of our portfolio in up and down markets based on three portfolio weighting schemes. These methods include: bootstrapping, conditional correlations, Monte Carlo simulation, and other downside deviation measures that allow us to study our portfolios beyond traditional mean-variance analysis.

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"The Future of Retail Investing in the Evolving Peer to Peer Lending Market": presentation by Emily Wood

Our research chair for 2016-17 presented her research on the current trends in P2P lending at the Global Conference on Business and Finance in Las Vegas in January of 2017.  Her works built on the previous two studies, and focused on the difficulties for retail investors in finding good loans, given the influx of institutional money in the P2P market.  In the future, we hope to build on this work as we evaluate our experiences adjusting to this new dynamic.

In the future, we would like to research Prosper’s new secondary market, to compare Prosper’s model to Lending Club’s, and to continue too evaluate the new institutional presence in the P2P market.  We also want to describe our experiences integrating cryptocurrency into a student-managed fund; we believe that we are the first SMF to have this interesting and welcome challenge.  We are also always looking at ways to help the underbanked avoid predatory lenders.  Interested members are encouraged to develop their own projects.

“Exploring the Viability of a Peer-to-Peer Loan Market for Students and the Underbanked”

The Global Journal of Business Research, Vol. 9, No. 4, 2015, p. 53-66.

It is difficult to achieve financial stability without access to traditional banking services.  “Unbanked” and “underbanked” groups therefore face significant financial hurdles, making them targets for predatory fringe lenders.  In this paper, we present the results of a credit survey given to college students and low-income residents of Tacoma, Washington.  Our first goal with this survey was to characterize credit use and access among these groups.  Given that information, we then could assess the feasibility of developing a viable peer-to-peer (P2P) platform for them that would be a consumer-friendly alternative to fringe lending.  We find that there is a need for small-dollar financial assistance, even within our relatively affluent student sample. We discuss the possibility of creating a student P2P market to help them, working through Four Horsemen Investments, a student-run 501(c)(3) not-for-profit organization.  Developing such a market on a small scale would be a precursor to expanding it to the local community, where it could help at-risk, low-income families. 

This paper is the completed version of the “underserved populations” paper begun by Hiroki Tokuyama.  2014-15 Research Chair Sam Anders built on that foundation, adding her own research from her work with Tacoma/Pierce County’s Bank-On coalition.  Anders presented the paper in Costa Rica in 2015, receiving the best-in-session presentation award and the outstanding research award at the Global Conference on Business and Finance.

“The Long-Term Performance and Potential of a Student-Managed Peer-To-Peer Loan Fund”

Under review for Business Education and Accreditation; submitted May, 2017.