This case explores the downfall of crypto hedge fund Three Arrows Capital (3AC), illustrating the critical role of operational due diligence (ODD). Established in 2012 by Su Zhu and Kyle Davies, 3AC's swift shift from forex to cryptocurrencies led to rapid success, marked by opulence and influence. However, in 2022, the fund collapsed due to mishandling, governance failures, and compliance missteps. Students assume the role of Vera-Maria, head of ODD at a fund of funds (FoF), tasked with investigating the 3AC collapse. The FoF, contemplating investments in crypto hedge funds, is wary of digital asset risks post-3AC's collapse. Vera-Maria aims to extract lessons and craft an ODD framework to mitigate risks in future digital asset investments. The case delves into the 3AC collapse's causes, offering students insights into institutional best practices. It equips them to navigate the digital asset space, and identify and mitigate counterparty risks, fostering a comprehensive understanding of ODD in the context of crypto hedge funds
This case study examines the pivotal role of centralized exchanges in today's digital asset ecosystem and emphasizes the importance of thorough due diligence for institutional investors when assessing digital asset companies. It underscores the need to recognize potential warning signs, such as inadequate regulatory oversight, inexperienced management, or intricate corporate structures. Furthermore, it delves into effective practices for Sovereign Wealth Funds (SWFs) and other institutional investors venturing into the digital asset landscape to adeptly manage risks. In this case, students assume the role of Raffi, an analyst at a prominent Middle Eastern SWF. The SWF contemplates digital asset investments as part of its portfolio diversification strategy but is wary of associated risks, especially in the aftermath of the FTX collapse. Consequently, they assign Raffi the task of investigating the FTX collapse, extracting essential lessons, and formulating a robust due diligence framework to mitigate risks in future digital asset investments. This case aims to provide students with a comprehensive understanding of the factors contributing to the FTX collapse and acquaint them with best practices for institutional investors navigating the digital asset space, focusing on the identification and mitigation of counterparty risks.
This case explores the general observations and financial implications behind the short squeeze that had happened on the GameStop Corp. (NYSE: GME), an American chain of brick-and-mortar video game stores. The company had struggled in recent years due to competition from digital distribution companies and the adverse impacts of the COVID-19 pandemic. As the share price of GME went up due to the hope of possible digital transformation since August 2020, there had been increasingly extensive short selling activities of GME stock by many institutional investors believing the firm was overpriced. Some of those short sellers were sizable hedge funds. The case seeks to highlight the definition, underlying factors, and mechanism of short selling, naked short selling and short squeeze. The reasons for market participants to do the above, the forthcoming risks, as well as the corresponding impact to the market are discussed. The case will discuss the interaction between social media and financial system nowadays. The perspectives (including interests and concerns) of the following parties will be analyzed, namely the retail investors, hedge funds and/or market makers, brokers (especially the FinTech-enabled zero-commission brokers), and regulators. Understanding the observations and implications of the case, students will be able perform a more comprehensive analysis on how social media and new technology shape the new investment world. Students will also be able to assess their own risks in conducting trades amid a short squeeze, or in anticipation of a short squeeze.
The case introduces IPOs in Hong Kong from the perspectives of both issuers and investors. Hong Kong was a popular choice among many local and nonlocal companies for listing. It ranked as first globally in terms of total proceeds raised for 5 out of 10 years between 2011 and 2020. The case is set in the fourth quarter of 2020, when the Ant Group entered Hong Kong for its IPO. Students take on the role of Lin Wong, head of the investment team of a new investment fund under Next Capital Investment Limited. Students have the opportunity to learn about IPOs from various perspectives: as pre-IPO investors in a fund's investment that is ready to go public, as retail investors to subscribe for high-profile IPOs in the market, and as potential cornerstone investors to subscribe for a portion in the global offering of an IPO.
This case explores the major considerations involved when choosing the most suitable listing market. In August 2020, Shanghai Lujiazui International Financial Asset Exchange Co Ltd, better known as Lufax, filed a confidential application to the US Securities and Exchange Commission for initial public offering in August 2020. The news stirred up heated discussions in the market, as Lufax was obviously of Chinese background. US-Sino relations had been experiencing more and more tensions. Even the US securities regulations had turned against US-listed Chinese firms. Amid this backdrop, is the US market the right choice for Lufax to go for an IPO? The market wonders if Lufax made a wise choice on the listing venue. The case seeks to highlight the considerations of Lufax in deciding on a jurisdiction to be listed in. Every venue has its own listing requirements and should fit differently for firms with different intentions and characteristics. Through the case, students will grapple with the step-by-step practical questions concerning the comprehensive list of considerations for choosing the suitable listing market and conduct an analysis of the suitability of the US market as Lufax' listing choice, compared to the market in Hong Kong and mainland China.
This case explores the corporate finance issues arising from the privatization of Li & Fung Limited (Li & Fung, prior stock code: 494.HK) in May 2020. A public announcement was made earlier in March of the same year, while its closing stock price surged by 88.0%, from HKD0.50 to HKD0.94, the following trading day. Such price movement reflected the market expectation of successful execution of the privatization proposal. The case seeks to highlight the considerations of Li & Fung in deciding on privatization, from a corporate finance perspective. Through the case, students will grapple with the practical questions of how controlling shareholders of a listed company should balance their own interests and the interests of disinterested shareholders in the market in formulating a privatization deal. There are always some signals that indicate a listed company may have a plan for privatization. Shareholders need to be alert to certain signals that may possibly indicate a good opportunity for speculation. Li & Fung is a good example for students interested in investment.
The case introduces various forms of real estate investment trusts ("REITs") existing in different markets in the world such as REITs in the United States, Japanese REITs (J-REITs) and Singapore REITs (S-REITs). The development Hong Kong's REITs (H-REITs) market started in 2005 when Link Real Estate Investment Trust listed its shares on the Stock Exchange of Hong Kong (SEHK), following the promulgation of the REIT Code in 2003. Development was slow. There were 11 REITs listed between 2003 and 2013, with one being suspended for trading; there was no listing of new REITs for six years, until December 2019 when China Merchants Commercial Real Estate Investment Trust listed its shares on the SEHK. REITs had developed rapidly in overseas markets such as Australia and the United States since the 1990s and had emerged in other markets like Japan and Singapore since the 2000s. And mainland China was developing its REIT market and could soon become one of the world's largest. Under the presence of strong competitions from neighbourhood markets and the potential opportunities from mainland property firms' fundraising needs and the development of Guangdong-Hong Kong-Macau Greater Bay Area, students take on the role of the SFC to consider how to better develop the Hong Kong's REITs market and make Hong Kong a capital formation centre for REITs.
This case highlights the rise of China in the global economy and capital markets. Many wealthy individuals and institutional investors in China are seeking better asset management services. As foreign asset managers make strategic plans for China, China's opening of its financial markets provides foreign asset managers opportunities as well as challenges. Specifically, the case deals with how the world largest hedge fund, Bridgewater Associates, LP (Bridgewater), founded by Ray Dalio, develops its China business under its wholly foreign-owned enterprise Bridgewater (China) Investment Management (BCIM). Students are expected to gain understanding of China's capital markets and wealth management industry from the perspective of Yan Wang, the general manager of BCIM, who is deciding how to embark on the next stage in China by reviewing its strategy and product offerings together with all major challenges ahead. Students can determine if the culture, products, and success factors of foreign asset managers work in China and discuss the potential strategies a foreign asset manager may undertake to develop its business in China. In addition, the case can be used for the discussion of the application of diversification, asset allocation, and all-weather strategy in practice and the merits and challenges of investing in the A-share market and RMB assets.
It was a subsidiary of China Construction Bank Corporation, one of China's top four banks. The asset management industry in China had always been quick to leverage technological change to gain an advantage. Since the debut of robo-advisors in 2015 in the Chinese market, this change was coming even faster. As a rising star in the area of financial technology (FinTech), robo-advisors applied automated algorithms to realize investment goals for clients in a cost-and time-efficient method. Between 2016and 2018, not only FinTech startups in China rushed to launch robo-advisor platforms, but also renowned internet companies like Alibaba and traditional financial institutions like big banks, asset management companies, or security firms in China began to introduce robo-advisory services into their existing business. Artificial intelligence had brought both opportunities and challenges to traditional investment managers. Mr. Sun and his management team needed to analyze the characteristics of the Chinese market and the pros and cons for launching robo-advisory services, and decide CCB Principal's strategy going forward. Should they start offering robo-advisors as a core service? The case reviews the origin and development of robo-advisors in the US, Europe, and Asian markets, and introduces the unique features of the asset management market in China. Thinking from the perspective of a chairman of one of the top asset management companies in China, students are expected to look into the characteristics of domestic Chinese investors (mentality, investment goals, level of sophistication, etc.) and the Chinese market (political and regulatory environment, technological application, product development, etc.), analyze the advantages and constraints for the development of robo-advisors in China, and come up with a suitable business model for CCB Principal's future strategies.
Forced by the investor preference for passive instruments like exchange-traded funds (ETFs) driven by ETFs' fee and performance advantages, regulatory pressures, and the rise of robo-advisors, the renowned active manager Fidelity embraced ETFs by introducing smart beta ETFs. As the new chairman, Abigail Johnson had to consider the challenges ahead including incompatibility with Fidelity's investment philosophy and fierce industry competition. The case is based on several concepts including ETFs, mutual funds, index funds, factor asset pricing models, financial innovation, active vs. passive investment management, and efficient market hypothesis, aiming to help students understand ETFs, especially smart beta ETFs, as well as Fidelity and other ETF providers. The case can be used to facilitate teaching in the area of Finance & Investments.
The case explores the decision of a financial advisor in Hong Kong whether to recommend leveraged and inverse ETFs (L&I ETFs) to her clients. The case introduces unique features of L&I ETFs, methodologies of performance calculation, their relative merits and risks comparing with alternative products available in the market including derivative warrants (DWs), Callable Bull Bear Contracts (CBBCs), traditional ETFs, futures and options. Thinking from the perspectives of a financial advisor, students should combine the knowledge of L&I ETFs, the given market data, the market views of the financial advisor, as well as the clients' characteristics (age, educational backgrounds, future investment goals, etc.) to come up with tailor-made recommendations for each individual client.
A financial advisor located in Hong Kong is requested by local clients for investment instruments with exposures to China stocks. He recommends several mutual funds of Value Partners. Value Partners is one of the largest asset management companies in Asia, and already has several funds investing in China stocks. To help customers decide which fund to invest, how should he evaluate and compare the performance of these funds? Which fund better satisfies the investment demand of each client?