In the summer of 2008, AQR Capital Management was considering the launch of a new hedge fund strategy. The proposed DELTA portfolio would offer investors exposure to a basket of nine major hedge fund strategies. The DELTA strategy would be innovative in two ways. First, in terms of its structure, AQR would implement these underlying strategies using a well-defined investment process, with the goal being to deliver exposure to a well-diversified portfolio of hedge fund strategies. Second, in terms of its fees, the new DELTA strategy would charge investors relatively lower fees: 1% management fees plus 10% of performance over a cash hurdle (or, alternatively, a management fee of 2% only). This fee structure was low relative to the industry, where 2% management fees plus 20% of performance, often with no hurdle, was standard.
This is a (B) case for AQR's Momentum Funds. It follows the first year of performance of the funds after launching, and gives students a critical inflection point for analyzing the nascent stages of a new product launch and the potential path dependence of the product depending on initial returns. It allows students to wrestle with the way forward given these conditions, and how (if at all) it changes their views, pitch, and perspective on the strategy, and traditional long-short strategies more generally.
AQR is a hedge fund based in Greenwich, Connecticut, that is considering offering a wholly new line of product to retail investors, namely the ability to invest in the price phenomenon known as momentum. There is a large body of empirical evidence supporting momentum across many different asset classes and countries. However, up until this point, momentum was a strategy employed nearly exclusively by hedge funds, and thus not an available investment strategy to most individual investors. This case highlights the difficulties in implementing this "mutual fund-itizing" of a hedge fund product, along with the challenges that the open-end and regulatory features that a mutual fund poses to many successful strategies implemented in other contexts. In addition, it gives students the ability to calculate and interpret various horizons of correlations between many popular investment strategies using long time-series data and then thinking about the potential complementarities of strategies from a portfolio construction context.
Describes the efforts made by the Boston Red Sox to sign superstar Japanese pitcher Daisuke (Dice-K) Matsuzaka within the context of the team's attempts to keep pace with longtime rival, the New York Yankees. In late 2006, Dice-K is viewed as the prize of the free agent pitching market. However, negotiations between the Red Sox and Dice-K's camp have broken down with the signing deadline less than 24 hours away (if Dice-K is not signed by the deadline, he must return to Japan for a year). How high should the Red Sox be willing to go with their offer? What are the alternatives if they fail to sign Dice-K? What kind of performance should they expect from Dice-K in the 2007 season? And finally, how does the signing fit into the greater strategic context of competing with the much-better funded Yankees?
TCI, The Children's Investment Fund, is a London-based hedge fund. The firm donates a significant fraction of the fees it earns to a charitable foundation. In 2005, TCI took a large stake in Deutsche Borse, the stock exchange in Frankfurt. Its battle with management disrupted a proposed merger and caused the CEO to exit. Addresses a variety of issues in the investments business, including: How do stock pickers create value? What are the benefits of long-term vs. short-term orientation, buying vs. selling short, and a generalist vs. a specialist approach? What is the role of shareholder activism in corporate governance? Do the investment business and charitable giving mix?
In February 2005, Jeffrey Tarrant (HBS '85) and Ted Seides (HBS '99) considered their strategy for Protege Partners, founded in July 2002 as a fund of hedge funds (FOHF) specializing in small hedge funds. Protege's assets under management had grown to $1.1 billion, and Protege's development almost exactly mirrored the founders' expectations from 2001. Although the founders saw benefits to growth, they remained committed to the integrity of managing a small fund and wanted to continue generating superior performance for their clients. Should they close the Protege FOHF to new investors and focus on managing the existing assets as they originally intended? Could they continue to increase assets under management without taking on more top-level professionals? Should they hire additional analytical staff to help them grow Protege? Should they leverage Protege's special relationships with seeded managers to create a multistrategy hedge fund? Perhaps most important, how would their valued clients react to change?