Darden Capital Management 2025: The Cavalier Fund

In early August 2025, the Cavalier Fund management team (Cavalier) was in the midst of its first meeting of the new fiscal year. The team was part of the Darden Capital Management program at the University of Virginia Darden School of Business, in which MBA students were entrusted with managing endowment capital for the school foundation. The program sought to prepare its participants for careers in investment analysis and portfolio management, with the recognition that hands-on experience in investment management was an important aspect of professional training.This case examines Cavalier&apos;s investment strategy decisions. It is designed to provide a context for an introduction to the intuition of the capital asset pricing model (CAPM) and practical estimation methods. Students are invited to make investment recommendations based on the risk-return characteristics of a set of stock-investment alternatives. The case discussion surrounds the tension with respect to the relevant measure of risk and the method for estimating benchmark returns. The case equips students with the materials for estimating a CAPM-based benchmark for each security using market data.At Darden, this case is taught in the core first-year MBA finance course as a way of introducing the intuition and application of the CAPM.<p>Excerpt</p><p>Darden Capital Management 2025: The Cavalier Fund</p><p>In early August 2025, the Cavalier Fund management team (Cavalier) was in the midst of its first meeting of the new fiscal year. The team was part of the Darden Capital Management (DCM) program at the University of Virginia Darden School of Business, in which MBA students were entrusted with managing endowment capital for the school foundation. The program sought to prepare its participants for careers in investment analysis and portfolio management, with the recognition that hands-on experience in investment management was an important aspect of professional training. The total assets under management for the DCM program were over $32 million, held in six funds: the Cavalier Fund, the Colonnade Fund, the Darden Fund, the Jefferson Fund, the Monticello Fund, and the Rotunda Fund. Each fund was managed independently by a small team of MBA students with some guidance from a student executive team, a faculty adviser, and a board of trustees.</p><p>Cavalier&apos;s investment strategy was to use fundamental analysis to identify and invest in companies that were undervalued relative to their long-term earning potential. The fund team looked for stocks that would generate above-normal returns over a one-to-four-year horizon. Using a bottom-up approach to stock selection, Cavalier held a diversified portfolio of about 25 stocks with current assets under management of $5 million. The fund also allowed some short positions for stocks expected to underperform. The new team was made up of four rising second-year student portfolio managers (see Exhibit 1) who were unified in their resolve to beat the fund&apos;s benchmark—the S&P 500 index (S&P 500)—over the coming year. There was, however, a fierce debate on the stock selection strategy required to accomplish this goal.</p><p>. . .</p>