Question 1
Consider a hedge fund whose annual fee structure has a fixed fee and an incentive fee with
a high watermark provision. The fund manager earns an incentive fee only if the fund is
above the high watermark of the maximum portfolio value since the inception of the fund.
Required:
Assess the positive and negative implications of the high watermark provision for the
investors of the hedge fund.
- Require only 200 words for this section
- 5 points [ positive and negative implications for the high water mark provision]
- Need to be based on Harvard referencing style and each point had to be from different sources.
- If applicable had to include relative examples for the point stated.
[5 marks]
Question 2
A hedge fund has compiled a list of French firms that it believes will outperform the overall
French stock market by 7 percent over the year. It also has compiled a list of French firms
that it believes will underperform the overall French stock market by 7 percent. The hedge
fund wants to invest in a market-neutral long/short strategy on the French stock market. It
has a capital of €25 million for this purpose. However, it would like to retain a cash cushion
of €1 million for unforeseen events. The hedge fund can borrow shares from a primary
broker with a cash margin deposit equal to 20 percent of the value of the shares. No
additional costs are charged to borrow the shares.
Required:
Outline the appropriate strategy for the hedge fund. [Require only 100 words here]
- Had to list 5 steps for the chosen strategy ; include a formula on how to compute the following
- The strategy had to counter the over value and under value of the French stock.
- Need to be based on Harvard Referencing; if possible 2 resources to be used here.
- What is the leverage can the hedge fund take on>?
[5 marks]
Question 3
Sam Short, CFA, has recently joined the investment management firm of Green, Spence and Smith (GSS). For several years, GSS has worked for a broad array of clients, including employee benefit plans, wealthy individuals and charitable organisations. Furthermore, the firm expresses expertise in managing stocks, bonds, cash reserves, real estate, venture capital and international securities. To date, the firm has not utilized a formal asset allocation process but instead has relied on the individual wishes of clients or the particular preferences of its portfolio managers. Short recommends to GSS management that a formal asset allocation process would be beneficial and emphasizes that a large part of a portfolio’s ultimate return depends on asset allocation. He is asked to take his conviction an additional step forward by constructing a proposal to the executive management.
Requirement
As a portfolio manager, had to establish a diversified portfolio and choose an asset.
The following portfolio must be recommended to GSS.
Compare and contrast 2 companies – had to be from the same industry.
I had chosen the automotive industry [Kia vs Hyundai] , and their country of origin is South Korea.
Choose an appropriate asset allocation method for the chosen companies based on their current allocation method performance? Etc, Bonds?
If they chose that method, why isit useful for them? What is the history of the industry in the asset allocation method?
If so, what are the factor causing them to underperformed / over performed?
Had to find the chosen company Return Rate, Standard Deviation and Covariance, … the data had to be 3 years of daily returns to establish its performance.
Based on the earlier computed data, had to form an efficient frontier graph, and compute their CML Line Graph..compare them with the market.
Need to be based on Harvard Referencing; if possible 5 resources to be used here
Need to allocate 700 words in this section.