Equinox Asset Management Case Study
Portfolio Management
Case 6 Equinox Asset Management
Executive Summary
Role playing Tom Henne, I’m trying to penetrate into pension market and change the way pension funds are run currently. The fund size is hard to tell since the cost structure of Equinox is unknown. But I have a rough idea of running a medium-size fund (between $30 to $50 million) targeting medium-size clients. I also decide to choose option 1 as the fee structure. These ideas are generated through analysis of current economic environment, Henne’s objectives, correlation between existing funds and TSX index, performance and size of existing funds.
Pension funds in Canada
Pension funds are established in order to provide income for people who are retired. So it’s risk averse and requires less liquidity. But it emphasizes on perfect connection of the circulation of payment and new investment since it has to pay back the investors in certain time period. .Since baby boom generation in Canada are near retirement, companies and pension funds now have more pressure and require higher return.
The size of pension funds in Canada is relatively big. The top three pension funds account for
$435 billion. Since the managers are paid based on AUM, they have strong incentive to enlarge and diversify their funds. This leads to the similarity between performance of pension funds and indexes.1 Large funds typically show high correlation of more than 95% with indexes. The variance between fund returns and their indexes endows Equinox opportunity to innovate since it tends to provide companies with alternative option with much higher return than indexes.
Currently, there are two types of pension plans. The differences of them are listed in Chart 2.
Employees are not taking enough risk given low interest rate and defined contribution plan. It’s because low interest rate means more investment opportunities in the equity market. But employees are just taking market risk and get indexes’
Case 6 Equinox Asset Management
Executive Summary
Role playing Tom Henne, I’m trying to penetrate into pension market and change the way pension funds are run currently. The fund size is hard to tell since the cost structure of Equinox is unknown. But I have a rough idea of running a medium-size fund (between $30 to $50 million) targeting medium-size clients. I also decide to choose option 1 as the fee structure. These ideas are generated through analysis of current economic environment, Henne’s objectives, correlation between existing funds and TSX index, performance and size of existing funds.
Pension funds in Canada
Pension funds are established in order to provide income for people who are retired. So it’s risk averse and requires less liquidity. But it emphasizes on perfect connection of the circulation of payment and new investment since it has to pay back the investors in certain time period. .Since baby boom generation in Canada are near retirement, companies and pension funds now have more pressure and require higher return.
The size of pension funds in Canada is relatively big. The top three pension funds account for
$435 billion. Since the managers are paid based on AUM, they have strong incentive to enlarge and diversify their funds. This leads to the similarity between performance of pension funds and indexes.1 Large funds typically show high correlation of more than 95% with indexes. The variance between fund returns and their indexes endows Equinox opportunity to innovate since it tends to provide companies with alternative option with much higher return than indexes.
Currently, there are two types of pension plans. The differences of them are listed in Chart 2.
Employees are not taking enough risk given low interest rate and defined contribution plan. It’s because low interest rate means more investment opportunities in the equity market. But employees are just taking market risk and get indexes’