7/30/2019 UFFM Case Study

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7/30/2019 UFFM Case Study

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University Fantasy Fund Manager 2012

Case Study for Group Challenge

Delta Bank Inc. is one of the top ten financial institutions globally. Its banking arm in Hong Kong is the

leading pension service provider, with more than 1.2 million members enrolled in its retirement savings

plan (called Delta EasyRetiring Scheme) and over US$ 20 billion of assets under management.

To ensure Delta Bank Inc. maintains its market leader position, its Business Strategy Unit continuously

monitors the industry landscape and finds new and innovative solutions to meet the ever-increasing

demand of pension investors. In a recent research study, Business Strategy Unit identifies a gap in the

mixed assets fundrange currently offered by pension service providers.

Mixed assets funds are pooled fund portfolios that invest in both global equities and global bonds

(hence the name mixed assets). Allocation between equities and bonds, as well as geographic regions,

varies depending on the investment objective of individual funds. A typical investment objective reads

something like this:

To maximise its long term capital appreciation in Hong Kong dollar terms and to outperform Hong

Kong salary inflation over the long term through a professionally managed portfolio of interests in

collective investment schemes

This type of fund is the bread and butter for all pension service providers the latest statistics published

by the regulator shows that mixed assets funds accounted for slightly over 50% of pension assets in

Hong Kong.

According to Business Strategy Units study, the present spectrum of mixed assets funds is a bi-polar

split between aggressive and conservative products:

Approach: Aggressive Conservative

Objective: Capital growth (Something in-between?) Capital preservation

Like its fellow service providers, Delta Bank Inc. currently offers two funds in its Delta EasyRetiring

Scheme: Delta Growth Fund (aggressive) and Delta Capital Fund (conservative). Deltas mixed assets

funds follow a fund-of-funds (FoF) structure, i.e. each portfolio is constructed by investing in a variety of

individual mutual funds managed by professional asset management firms. Delta Bank Inc.s current

fund management partner is J.P. Morgan Asset Management.

As the incumbent portfolio manager of both mixed assets funds, you are tasked by the banks Chief

Investment Officer to develop a new mixed assets fund that can fill the gap. There is no specificbenchmark for this new fund, so your only reference is the industry average of existing aggressive and

conservative funds. The CIO reminds you that simply coming up with a 50/50 global equity-bond product

is not sufficient. Only an innovative solution will put Delta Bank Inc. above everyone else and reinforce

its industry leadership.

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As a start, you review Business Strategy Units research paper and find two tables which show the

industrys average asset allocation of each fund type:

Aggressive

Allocation (%) 2005 2006 2007 2008 2009 2010 2011

Equity 75.0 73.2 73.1 71.4 66.9 71.1 73.7

Hong Kong 25.0 21.1 23.2 25.2 21.0 22.0 22.5

Asia ex-Japan 10.0 14.2 13.6 12.4 13.0 14.0 14.7

Japan 10.0 10.1 7.5 6.9 7.2 6.9 7.6

America 15.0 13.3 12.5 12.7 13.9 14.1 15.6

Europe 15.0 14.5 16.3 14.2 11.8 14.1 13.3

Bond 23.0 20.1 20.1 21.4 26.8 23.1 22.6

Global 16.0 13.4 13.4 14.3 17.9 15.4 15.1

Hong Kong 7.0 6.7 6.7 7.1 8.9 7.7 7.5

Cash 2.0 6.7 6.8 7.2 6.3 5.8 3.7

Conservative

Allocation (%) 2005 2006 2007 2008 2009 2010 2011

Equity 30.0 31.3 30.6 29.5 25.3 30.2 33.1

Hong Kong 10.0 9.0 9.9 10.5 9.0 10.3 10.7

Asia ex-Japan 4.0 5.5 4.8 5.3 4.5 6.1 6.8

Japan 4.0 5.4 3.9 3.5 3.2 3.1 3.6

America 6.0 5.8 5.4 4.7 4.6 5.3 6.8

Europe 6.0 5.6 6.6 5.5 4.0 5.4 5.2

Bond 60.0 58.5 59.2 61.3 65.0 57.9 60.8

Global 40.0 39.0 39.5 40.9 43.3 38.6 40.5

Hong Kong 20.0 19.5 19.7 20.4 21.7 19.3 20.3

Cash 10.0 10.2 10.2 9.2 9.7 11.9 6.1

You are about to build a new mixed assets fund that fits the requirement of the CIO. In particular, you

will:

Come up with the investment objective of the fund and an appropriate name for it Propose the asset and geographic allocation ranges of the fund and the construction rationale Choose funds for your portfolio from the full JPMorgan range which are authorised by HKSFC

and the selection rationale

Devise an appropriate measurement of your new funds performance and the mechanism forrisk monitoring and control

Conduct performance and attribution analysis based on past data Decide on the new funds fee structure

The CIO will be presenting your proposal to Delta Bank Inc.s board on 22 Feb, 2013.