Managing Investment Portfolios A Dynamic Process Workbook 1st Edition John L. Maginn, Donald L. Tuttle, Dennis W. McLeavey, Jerald E. Pinto - Solutions

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Identify several unanswered research questions about the role of PE and VC firms in IPOs.
Discuss the certification and grandstanding hypotheses in relation to IPO underpricing.
Describe the monitoring role of VCs in their investee companies.
Discuss the role of VCs in IPO underpricing.
Explain the common exit routes taken by VC firms and identify the most popular exit route.
List and explain measures that can be used to monitor a portfolio’s evolution.
Discuss the pros and cons of bottom-up and top-down portfolio constructions.
Describe the two alternative frameworks to MPT and how they are relevant for PE investment.
Explain why PE does not fit into the standard Markowitz portfolio optimization.
List and describe differences between PE investments and tradable assets such as common stock and bonds.
Explain how the Dodd–Frank Act and AIFM Directive relate to PE liquidity risk.
Explain the avenues through which PE LPs faced liquidity problems during the GFC.
Describe the impact of the GFC on PE GPs in terms of liquidity.
Explain the term “denominator effect” for PE and the GFC and discuss its impact on the PE secondary market.
Identify and discuss the two types of liquidity risk investors face in PE.
Discuss how adjusting for liquidity premiums improves the valuation process.
Explain the main consequences of illiquidity or stale valuation on PE.
Identify which asset pricing models should be used to value the cost of capital of PE.
Discuss whether the cost of capital of PE differs from the standard paradigm established by the modern finance theory.
Discuss the means by which PE firms can increase the value of companies they acquire.
Explain why multiples-based valuation and the APV method may be appropriate in evaluating a PE firm.
Discuss how to use the DCF method to estimate the value of a PE firm.
Explain the difference between simple equity cash flow and complex whole cash flow.
Explain why distressed debt investors are sometimes characterized as “vulture investors.
Explain whether distressed investors can add alpha if their returns tend to depend on favorable market environments.
Compare and contrast the main strategies used by distressed debt investors.
Discuss how the passage of the Bankruptcy Act of 1978 set the stage for the growth of distressed debt investing.
Given that rating agency guidelines favor preferred equity over mezzanine loans in rating CMBS debt, explain why CMBS lenders so strongly favored mezzanine debt as the mezzanine level in their structured financings.
Discuss how the rating agencies shaped CRE mezzanine investment.
Standardization of documentation appeared to be one feature of mezzanine loans attracting investors such as foreign banks. Discuss whether such packaging of investment products should weigh heavily in the choice of mezzanine investment forms.
Compared to mortgage debt, identify the primary risks inherent in mezzanine investments in real estate and discuss how they differ between preferred equity or mezzanine loans.
List the factors leading to the upsurge in mezzanine investment in real estate during the 20-year period preceding 2008 and identify which still apply today.
Identify the hallmark of mezzanine investment and discuss some other important characteristics.
Discuss the importance of maintaining a relationship with banks for a buyout fund.
Define dry powder and discuss how it affects a fund’s investment decisions?
Identify typical restructuring mechanisms of LBO funds in their portfolio companies and discuss why some restructuring mechanisms may be detrimental to the portfolio companies.
Discuss the role of leverage in an LBO.
Explain why returns of PE funds have a J-curve effect.
Indicate two approaches for analyzing the performance of PE funds.
Discuss whether the American and European VC practices converged.
Identify and discuss the main features of the VC industry in Europe.
Discuss the future of PE in the United States and Europe.
Compare the regulatory approach of the United States and the European Union toward the PE industry.
Discuss general trends in the U.S. PE industry.
Discuss how actions taken by central banks in the late 2000s and early 2010s in the United States and Europe that influenced PE activity.
28. (Adapted from the 2002 CFA Level III examination)It is 2007. Bristol Capital Management is the intermediate global fixed-income manager for the Jarvis University endowment fund. Bristol has prepared the performance report shown in Exhibit 13-4. James Chan, consultant to Jarvis University,
27. Bristol Capital Management manages an equity portfolio on a tax-aware basis for Martin Flemington, a high-net-worth individual. Flemington’s tax accountant advises Bristol that Flemington’s expected federal income tax rate is 17.2 percent, his expected state income tax rate is 4.3 percent,
26. Renner, Williams & Woods decides to have its equity and balanced composites verified.Because the firm has only a handful of fixed-income accounts and does not present fixedincome management results in marketing materials shown to prospects, management decides that it would be a waste of time
25. Bronson Growth Property is a real estate development organization that raises funds from wealthy individuals and rehabilitates blighted commercial buildings for sale. Secondquarter financial information about one of Bronson’s funds, called Rehab XI, appears in Exhibit 13-2.A. Using the data
24. A performance analyst determines that an asset-weighted composite return for one year is 2.59 percent and the mean return of the portfolios in the composite is 2.57 percent. She calculates the following dispersion measures for the portfolios that were in the composite for the full year:High
23. Renner, Williams & Woods specializes in management of equity and balanced individual, personal accounts with an emphasis on income generation. Because most of its clients are elderly and care little about performance as long as they receive a steady, monthly income stream, Renner, Williams &
22. Larson Dynamic Management, a GIPS-compliant firm, has specialized in equity investment management for more than 20 years. Employing a large-cap growth style of equity management, the company has compiled a mediocre track record during the last decade and has slipped below its benchmark during
21. Bentwood Institutional Asset Management has been managing equity, fixed-income, and balanced accounts since 1986. The firm became GIPS-compliant on January 1, 2001, and prepared composite performance presentations for the 1996–2000 period. Fixed-income performance was poor prior to 2001, when
20. Because Smith & Jones Asset Management’s net-of-fees performance record is superb, management has chosen to present performance (calculated monthly using the Modified Dietz method) net of investmentmanagement fees. The firm’s fees are not bundled.What are the GIPS standards’ requirements
19. Claiborne and Jackson, recognizing that its equity performance was poor, terminates some of its investment professionals and hires a new team of equity portfolio managers from a rival firm, Shelbourne Capital Company, in 2006. The new employees of Claiborne and Jackson include two members of
18. Smith&Jones wants to include the performance and assets of the equity and fixed-income portions of its balanced accounts in separate composites.Management recognizes that the GIPS standards require cash to be allocated to carve-out segments. Data on a balanced account composite with an 80/20
17. The performance of the equity composites presented by Shelbourne Capital Company declines after seven members of the equity investment management group leave the small firm in April 2006. The head of performance measurement informs senior management that the GIPS standards require firms to
16. What is the minimum number of portfolios that a composite must contain to comply with the GIPS standards? Must a firm disclose the number of portfolios in a composite?
15. Under what conditions may a portfolio be switched from one composite to another? How must the historical record of the portfolio be treated?
14. When should a new client’s portfolio be added to an existing composite?
13. Smith & Jones Asset Management manages numerous balanced accounts in addition to equity and fixed-income accounts. Discuss an approach for defining balanced account composites in accordance with the GIPS standards.
12. The GIPS standards require that a firm’s composites must be defined according to similar objectives, strategies, or styles. State the guiding principles for composite definition, and explain the suggested hierarchy for defining composites.
11. MidwestNational Bankmanages a domestic equity portfolio for the Springfield Municipal Employees’ Retirement Fund (SMERF), a mature defined-benefit pension plan. The SMERF portfolio belongs to Midwest’s Institutional Equity composite. The composite description states, ‘‘Portfolios
10. Explain how the concept of discretion is used to determine whether or not an account should be included in a composite.
9. A European equity composite contains three portfolios. Use the data given in Exhibit 13-1 to answer parts A through C.A. Calculate the returns of Portfolio A, Portfolio B, and Portfolio C for the month of August using the Modified Dietz formula. For convenience, the cash flow–weighting factors
8. How must the firm treat trading expenses when calculating performance that adheres to the requirements of the GIPS standards? What is the rationale for the required treatment?
7. Use the following input data on the Dennett portfolio for the month of March 2006 to answer questions A through C.Market value 28 February $16,575,000 Cash contribution 12 March 2,265,000 Market value March 12a 19,550,000 Market value March 31 19,250,000 aIncludes cash contribution of $2,265,000
6. Barry, Smith Investment Management specializes in balanced account management for midsize pension plans. On March 12, 2006, a contribution of $2,265,000 is made to Dennett Electronics’ Pension Plan, which is included in Barry Smith’s Balanced Tax-Exempt Composite. Barry, Smith invests the
5. In March 1997, Smith & Jones Asset Management, a GIPS-compliant firm, introduced a new technical analysis model that management believed would be a powerful tool in tactical asset allocation. After extensive back-testing, Smith & Jones began to use the model to manage actual ‘‘live’’
4. Smith & Jones AssetManagement has been managing equity, fixed-income, and balanced accounts since 1986. Senior management has decided that to remain competitive and fairly present performance to prospective clients, the firm must adopt the GIPS standards companywide. After compiling performance
3. The Dennett Electronics Pension Plan had the following quarterly returns during the last two years:1Q Year 1: +4.76%2Q Year 1: +12.08%3Q Year 1: –4.88%4Q Year 1: +7.14%1Q Year 2: –13.57%2Q Year 2: +17.65%3Q Year 2: +1.08%4Q Year 2: +0.97%Calculate the following:A. Annual performance for Year
2. Larson Dynamic Management claims to comply with the GIPS standards. At the time the firm first achieved compliance, trade-date accounting was recommended but settlement date accounting was acceptable. On January 1, 2005, trade-date accounting became mandatory. Larson Dynamic Management has been
1. Walker, Pierce Corporation is a global financial services company. In addition to its London headquarters, the company has subsidiaries in New York, Frankfurt, and Hong Kong. Walker, Pierce Corporation has decided not to implement the GIPS standards.However, the head of marketing for its
17. Compare and contrast macro attribution with micro attribution. What is the difference between using a return metric and using a dollar metric? Briefly discuss the inputs and methodology that could be used with a macro analysis.
16. Briefly explain the challenges inherent in performance measurement and performance evaluation for a long–short hedge fund. If traditional performance measurement and evaluation are not appropriate in a long–short environment, are there other options that may be useful?
15. You are a plan sponsor trying to decide between two equity portfolio managers. As you review the information you have gathered during your search, you notice that the two managers have similar investment styles and similar returns for the equity portion of their portfolios. However, the first
14. A plan sponsor is considering two U.K. investment managers, Manchester Asset Management and Oakleaf Equities, for the same mandate. Manchester will produce on average an annual value-added return of 1.5 percent over the benchmark, with variability of the excess returns of 2.24 percent. Oakleaf
13. Susan Jones is a U.S. domestic equities investor. Her portfolio has a zero-factor value of 0.5 and a beta of 1.15 at the beginning of the investment period. During the first quarter of 2003, the return on the Wilshire 5000, a broad U.S. equity market index, was 5.9 percent.Jones has just been
12. Kim Lee Ltd., an investment management firm in Singapore managing portfolios of Pacific Rim equities, tells you that its benchmark for performance is to be in the top quartile of its peer group (Singapore managers running portfolios of Pacific Rim equities)over the previous calendar year. Is
11. Briefly discuss the properties that a valid benchmark should have.
10. The information in Exhibit 12-1 pertains to a New Zealand pension plan sponsor.Based on the information given in the table, address the following:A. Which asset classes and managers have done relatively well and which have done relatively poorly as judged by returns alone?B. Characterize the
9. You have selected a U.S. domestic equity manager for a small-cap mandate. Your consultant has suggested that you use the Russell 2000 Index as a benchmark. You find the following information on the Russell/Mellon web site (www.russellmellon.com):Russell 3000 Index The Russell 3000 Index
8. A U.S. large-cap value portfolio run by Anderson Investment Management returned 18.9 percent during the first three quarters of 2003. During the same time period, the Russell 1000 Value Index had returns of 21.7 percent and the Wilshire 5000 returned 25.2 percent.A. What is the return due to
7. Swennson, who manages a domestic equities portfolio of Swedish shares, has had fairly volatile returns for the last five years. Nevertheless, Swennson claims that his returns over the long run are good. Another Swedish equity manager, Mattsson, has had less volatile returns. Their records are as
6. A pension portfolio manager is about to upgrade his performance calculation software.Currently, his performance software will only calculate his performance on a quarterly basis. For the year 2005, the quarterly performance numbers are as shown below:Quarter 1: 5.35%Quarter 2: –2.34%Quarter 3:
5. Compare and contrast the time-weighted rate of return with the money-weighted rate of return. In general terms, how is each calculated? Are there certain situations that would cause the two methods to have drastic differences in the calculated rates of return?
4. An investment manager has time-weighted returns for the first six months of the year as follows:January: 1.25%February: 3.47%March: –2.36%April: 1.89%May: –2.67%June: 2.57%A. Calculate a time-weighted rate of return for the investment manager by chain-linking the monthly time-weighted
3. Mary Nesbitt has an investment account with a local firm, and she makes contributions to her account as funds become available. Self-employed, Mary receives money from her clients on an irregular basis. She began the month of September with a balance in her account of $100,000. She received
2. Frederic Smith works for the Swanson Manufacturing Company and participates in the savings plan at work. He began the month with a balance in his account of £42,000.When he got paid on the last day of the month, the company deposited 10 percent of his gross salary into his savings plan account
1. Paul Joubert retired from his firm. He has continued to hold his private retirement investments in a portfolio of common stocks and bonds. At the beginning of 2002, when he retired, his account was valued at ¤453,000. By the end of 2002, the value of his account was ¤523,500. Joubert made no
3. (Adapted from the 2002 CFA Level III examination)Initial Client Circumstances Claire Wisman, a vice president for Spencer Design, is a 42-year-old widow who lives in the United States. She has two children: a daughter, age 21, and a son, age 7. She has a $2.2 million portfolio; half of the
2. (Adapted from the 2001 Level III examination)Duane Rogers, as chief investment officer (CIO) for the Summit PLC defined-benefit pension scheme, has developed an economic forecast for presentation to the plan’s board of trustees. Rogers projects that U.K. inflation will be substantially higher
1. Evaluate the most likely effects of the following events on the investor’s investment objectives, constraints, and financial plan.A. A childless working married couple in their late 20s adopts an infant for whom they hope to provide a college education.B. An individual decides to buy a house
17. A trader has been given two trades to execute with the following characteristics. What tactics do you recommend?Average Daily Trade Size (shares) Volume (ADV) Price Spread (%) Urgency A 200,000 6,000,000 10.00 0.03 High B 150,000 200,000 10.00 0.60 High 18. A trader must rebalance a pension
16. Consider some stocks that trade in two markets, with a trader being able to trade in these stocks in either market. Suppose that the two markets are identical in all respects except that bid–ask spreads are lower and depths (the number of shares being offered at the bid and ask prices) are
15. An employee retirement fund manager believes he has special information about a particular company. Based on this information, he believes the company is currently undervalued and decides to purchase 50,000 shares of the company. The manager decides that he will not place a large single order
14. Several British stocks trade on both the London Stock Exchange and the New York Stock Exchange. Due to the time difference between London and New York, these stocks trade for six hours every day in London only, followed by the opening of the NYSE and a two-hour period when both markets are open
13. Famed Investments has a C$25 million portfolio. It follows an active approach to investment management and, on average, turns the portfolio over twice a year. That is, it expects to trade 200 percent of the value of the portfolio over the next year. Every time Famed Investments buys or sells
12. Jane Smith manages an equity fund. She has decided to undertake a major portfolio restructuring by increasing the exposure of the fund to the telecommunications sector.The implementation of her decision would involve investing more than $2 million in the stocks of about 20 telecommunications
11. Suppose 1,000 shares of Acme Co. stock are ordered to be bought on Monday with a benchmark price of $10.00. On Monday, 600 shares are purchased at $10.02 per share.Commissions and fees are $20. On Tuesday, the benchmark price has fallen to $9.99 per share. On Tuesday, 100 more shares are

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Managing Investment Portfolios A Dynamic Process Workbook 1st Edition John L. Maginn, Donald L. Tuttle, Dennis W. McLeavey, Jerald E. Pinto - Solutions

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