Dynamis Fund case study
FIN3102 Investment Analysis and Portfolio Management
Case 1- The Dynamis Fund: An Energy Hedge Fund
Section C4 Group 1C
Group Members
Chen Zu Qing (U098258E)
Kwan Kin Weng (U090381H)
Low Siao Chi (U098260J)
Sim Wan Lin (U098374Y)
Yong Jun Kang Eric (U098357R)
Yong Lin Lin (U098312Y)
0
1. Why would a regional brokerage offer such instruments
Compared to individual portfolios, such funds woo investors by offering several advantages namely: professional asset/money management, liquidity and more diversification than most individuals can create or afford in a personal portfolio.
The brokerage’s motivation in recommending energy investments can be explained by the high commission that could be earned. Hedge funds charge a fee for assets under management and incentive fees based on a certain percentage of the profits earned. With good stock picking, the brokerage would be able to earn profits in both up and down markets.
A regional broker would want to offer hedge funds because they are only lightly regulated and thus the fund managers can use more advanced investment strategies such as a leveraged and derivatives positions. It is stated in their selling memorandum that their mission is to exploit investment opportunities in publicly traded companies in the energy sector. Hence, the fund seeks to generate above average returns relative to both S&P Energy composite and the broader market through a variety of investment instruments.
Also, the fund's use of various strategies will be designed to minimize risk while maximizing potential return, again increasing the commission that could be paid to the hedge fund managers. This potentially high level of compensation helps the brokerage retain talented brokers and specialists, raising the reputation of the firm.
Furthermore, investing in energy funds serves as a diversification tool. This is because from historical records, energy prices have had a high correlation with inflation. In times of rising inflation, energy
Case 1- The Dynamis Fund: An Energy Hedge Fund
Section C4 Group 1C
Group Members
Chen Zu Qing (U098258E)
Kwan Kin Weng (U090381H)
Low Siao Chi (U098260J)
Sim Wan Lin (U098374Y)
Yong Jun Kang Eric (U098357R)
Yong Lin Lin (U098312Y)
0
1. Why would a regional brokerage offer such instruments
Compared to individual portfolios, such funds woo investors by offering several advantages namely: professional asset/money management, liquidity and more diversification than most individuals can create or afford in a personal portfolio.
The brokerage’s motivation in recommending energy investments can be explained by the high commission that could be earned. Hedge funds charge a fee for assets under management and incentive fees based on a certain percentage of the profits earned. With good stock picking, the brokerage would be able to earn profits in both up and down markets.
A regional broker would want to offer hedge funds because they are only lightly regulated and thus the fund managers can use more advanced investment strategies such as a leveraged and derivatives positions. It is stated in their selling memorandum that their mission is to exploit investment opportunities in publicly traded companies in the energy sector. Hence, the fund seeks to generate above average returns relative to both S&P Energy composite and the broader market through a variety of investment instruments.
Also, the fund's use of various strategies will be designed to minimize risk while maximizing potential return, again increasing the commission that could be paid to the hedge fund managers. This potentially high level of compensation helps the brokerage retain talented brokers and specialists, raising the reputation of the firm.
Furthermore, investing in energy funds serves as a diversification tool. This is because from historical records, energy prices have had a high correlation with inflation. In times of rising inflation, energy