I know Im new to this forum and just wanted to thank you guys for all the useful information you guys are posting…Just had a quick debate… I remember reading a thread on this but I cant remember under which title… The question regarding the investment management firms, with the leverage and all… From what I remember the first question was about which of the 3 would be MOST likely to be RESTRICTED by an IPS…I think the consensus on the message board was the long only fund… I choose the long-short with the highest leverage…here is my reasoning…Some IPS’ will clearly state no short selling and/or no leverage…If this is the case then this manager will be restricted in carrying out his strategy which includes shorting stocks and using leverage… The 2nd question was which manager was most likely to have to liquidate his holdings…I chose the long only manager, and the consensus i believe was one of the long-short…This one I was less confident in…But I felt if a manager was using a long-short strategy…if a stock he is holding got to a point that it was overvalued, he could just short it, instead of having to sell it…If a long only manager held a stock that got to a point where it was overvalued, then he would need to liquidate his position and sell it, because shorting is not an option… If I misremembered the questions please let me know…Wanted your guys thoughts/comments… Also, there was a thread where everyone was giving their email addresses to get a sheet that was being sent around with questions/answers…my emails nygiants774@yahoo.com If someone can add me to that… Thanks
Hey, 1) Yes, alot of people thought the first question was which of the following has the most restricitons, which of course is the long only fund, but the question actually was the Long/Short fund, because many IPS’s documents prohibits leverage and short selling, and since that question fell under “portfolio management” subject, therefore it was the fund with the highest ratio of long/short and most elevrage ( i forgot exact number) I originally circled Long Only and thought this question was a joke ( which had most restrictions) but when I read…"for an IPS) i knew right away it was the highest short 2) for the 2nd question, the consensus here was those who are highly leveraged are the ones who would most likely have to liquidate their holdings, but the question dealt with UNFAVORABLY liquidate their holdings. BUT there is disagreement on whether it was the manager who was 2 X leveraged with 200 holdings OR the manger who was 1.5 X leverage with 50 holdings. I choose the 50 holdings since the manager has less choice of to choose what to liquidate, there is a greater chance that he would have to liquidate his holdings UNFAVORABLY. Again with this one, I initially chose the one with highest leverage but when I saw that the question mentioned “liquidate UNFAVORABLY” I knew right away it would be the manager with the lowest amount of holdings, sicne there is a greater chance that those holdings are currently unfavorable to liquidate if they had to.
huh? there is mkt inefficiency on the short side, so the long only manager is more restricted than the long-short long-short can be devastating if you pick wrong, because if you get caught long the one going down and short the one going up you’re gonna get killed, and so the highest levered long-short will have to liquidate
Giants47 Wrote: ------------------------------------------------------- > I know Im new to this forum and just wanted to > thank you guys for all the useful information you > guys are posting…Just had a quick debate… > I remember reading a thread on this but I cant > remember under which title… > The question regarding the investment management > firms, with the leverage and all… > > From what I remember the first question was about > which of the 3 would be MOST likely to be > RESTRICTED by an IPS…I think the consensus on > the message board was the long only fund… > I choose the long-short with the highest > leverage…here is my reasoning…Some IPS’ will > clearly state no short selling and/or no > leverage…If this is the case then this manager > will be restricted in carrying out his strategy > which includes shorting stocks and using > leverage… > > The 2nd question was which manager was most likely > to have to liquidate his holdings…I chose the > long only manager, and the consensus i believe was > one of the long-short…This one I was less > confident in…But I felt if a manager was using a > long-short strategy…if a stock he is holding got > to a point that it was overvalued, he could just > short it, instead of having to sell it…If a long > only manager held a stock that got to a point > where it was overvalued, then he would need to > liquidate his position and sell it, because > shorting is not an option… > If I misremembered the questions please let me > know…Wanted your guys thoughts/comments… > > Also, there was a thread where everyone was giving > their email addresses to get a sheet that was > being sent around with questions/answers…my > emails nygiants774@yahoo.com If someone can add me > to that… > Thanks on the 1st point, the question was silent as to such specific restrictions of no leverage or short selling… a long only straight awy has a restriction of not going short…thus in absence of any specificity relating to IPS , i guess long only was restricted by not able to short…my 2 cents
^agreed i dont remember any specific restrictions of no leverage or short selling…a lot of funds are mandated to remain long-only by their sponsors which means they have the most restrictions in tems of exploiting alpha because they can only under or overweight the benchmark - wasnt that what the question was asking?
From what I remember the first question was about which of the 3 would be MOST likely to be RESTRICTED by an IPS…I think the consensus on the message board was the long only fund… I choose the long-short with the highest leverage…here is my reasoning…Some IPS’ will clearly state no short selling and/or no leverage…If this is the case then this manager will be restricted in carrying out his strategy which includes shorting stocks and using leverage… If the IPS states no short selling and/ or no leverage, then they wouldn’t hire a long/short manager in the first place. Are you sure you have the question right? I thought the question had to do with which manager would have the most problems exploiting inefficiencies…Although 5 days out, things are getting hazy!
See I think the confusing part for most was the restriction. The question specifically asked which manager is most likely to be restricted by a clients IPS. A long only manager is inherently restricted by the nature of only being able to go long assets…But the question was specifically asking which is most restricted by a clients IPS, and in an IPS restrictions on short selling or using leverage will restrict the manager from being able to fully utilize their long-short leveraged strategy… As for the 2nd question I think it depends on how the question is interpreted. From what you guys were saying it says which manager is likely to have to liquidate unfavorably. Lets say a manager holds stock X and thru research they believe the stock is currently overvalued. A long only manager has to liquidate his position, instead of profitting from shorting the stock if it is truly overvalued. A long-short manager doesnt have to liquidate and can short the stock
But why hire a long/short manager if you don’t allow shorting?
you dont necessarily need to hire the investment manager…could have had a long/short, investor circumstances changed, became more risk averse and now didnt want to short anymore…either way its a ridiculous question from the CFA without more details in the question (as many questions were pretty ridiculous, particularly ethics)
IH8FSA Wrote: ------------------------------------------------------- > Hey, > > 1) > > Yes, alot of people thought the first question was > which of the following has the most restricitons, > which of course is the long only fund, but the > question actually was the Long/Short fund, because > many IPS’s documents prohibits leverage and short > selling, and since that question fell under > “portfolio management” subject, therefore it was > the fund with the highest ratio of long/short and > most elevrage ( i forgot exact number) > > I originally circled Long Only and thought this > question was a joke ( which had most restrictions) > but when I read…"for an IPS) i knew > right away it was the highest short > > > 2) for the 2nd question, the consensus here was > those who are highly leveraged are the ones who > would most likely have to liquidate their > holdings, but the question dealt with UNFAVORABLY > liquidate their holdings. BUT there is > disagreement on whether it was the manager who was > 2 X leveraged with 200 holdings OR the manger who > was 1.5 X leverage with 50 holdings. I choose the > 50 holdings since the manager has less choice of > to choose what to liquidate, there is a greater > chance that he would have to liquidate his > holdings UNFAVORABLY. > > Again with this one, I initially chose the one > with highest leverage but when I saw that the > question mentioned “liquidate UNFAVORABLY” I knew > right away it would be the manager with the lowest > amount of holdings, sicne there is a greater > chance that those holdings are currently > unfavorable to liquidate if they had to. Agree with you on both. Re 2, I use my common sense, just by looking at how many small hedges fund have gone out of biz since last year, the big ones can still survive because of the size.
For Q1 I think Long Only is the right answer, some above people seem to read into the question too much…excessive interperation For Q2 I recall the leverage ratio the question used is asset/equity, rendering the fund with 1.5x the most levered as opposed to the fund with 2.X (not 100% sure if this is also the one with the lowest holdings)
ayao008 Wrote: ------------------------------------------------------- > For Q2 > I recall the leverage ratio the question used is > asset/equity, rendering the fund with 1.5x the > most levered as opposed to the fund with 2.X (not > 100% sure if this is also the one with the lowest > holdings) by your definition the 2x fund is more leveraged than the 1.5x fund. 2 units of assets per unit of equity means more debt than 1.5 units of assets per unit of equity, no?
For the first question, refer CFA book Vol. 4, page 225. In this specific question, they didn’t tell what was the IPS restriction instead said “from IPS perspective”’. What does it mean? Like AYAO008 said, you could either read too much into the question or just an ordinary IPS. also, long only is in fact long-short portfolio (not holding some stocks means negative weights comapared to the benchmark). Vol. 4, page 225, para 2 & 3. For the second question, refer CFA book Vol. 4, page 223, para 3.
You are right