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This case discusses the issues facing a relatively new and small equity hedge fund as it attempts to expand its investor base.

Supplements the (A) case.

A hedge fund is trying to decide whether to capitalize on a seeming risk arbitrage opportunity that exists during the Abbott Labs acquisition of ALZA.

Spreadsheet Supplement for case 203001

Describes the investment strategy of risk arbitrage.

Dimensional Fund Advisors (DFA) is an investment management firm that prides itself on basing its investment strategies on sound academic research. Many of the best-known finance research papers of the past two decades (especially those by Eugene Fama and Kenneth French, who work closely with DFA) have led to DFA investment strategies. DFA began as a small-stock fund, attempting to take advantage of the "size affect" (excess performance of small stocks) that had been discovered by a number of academic researchers. Later, DFA added "value" strategies to its mix of offerings. After academic research documented superior performance by value stocks in a multitude of countries, DFA began to create a variety of international value-stock and small-stock investment funds. The company was highly successful, despite missing out on the great 1990s growth-stock boom. DFA's assets under management grew from $8 billion to $40 billion between 1991 and 2002. With value stocks having performed well in the first two years of the new decade, DFA is experiencing continued growth of its investor base and is now seeking new areas in which it can add value for investors while continuing to claim to have no special "stock-picking" ability.

This case analyzes a large investment decision considered by the Texas Rangers in 2000: whether to spend $252 million for the services of shortstop Alex Rodriguez. The signing was probably the most controversial sports contract of the past decade.

Spreadsheet to (9-201-061). Presents exhibits 1 and 2. Download only.

This case presents the managerial dilemma faced by the treasurer of South Carolina in 1998. Until last year, the South Carolina state pension fund (with over $17 billion in assets) was barred by the state constitution from investing in equities. After the constitution was amended, the state government had to decide how much to invest in equities and what assets to choose. Using domestic and international data, the concepts of standard deviation, correlation, covariance, diversification, and risk are introduced. Additionally the case looks at the equity premium from a global setting. This case covers two days and will be used early in the Risk and Return module, just before the introduction of the CAPM.