Strategic Capital Management Paper
Strategic Capital Management, LLC
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Corporate Valuation 248 Group Project #1
Strategic Capital Management, LLC
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Corporate Valuation 248 Group Project #1
The main benefit of a hedge fund is that an investor can make higher returns with a hedge fund compared to the market returns by using leverage from taking a short position in certain stocks. It is possible for the return for hedge funds to be maintained consistent regardless of whether the market is rising or falling. On average, a hedge fund will typically carry lower risk than the market. However, given the long/short strategy of hedge funds, there still exists a risk for significant losses.
The main costs associated with hedge funds are typically a management fee and a performance fee. In this situation with Strategic Capital Management, the management fee is 2% of assets and the inventive fee is 20% of profits. The leverage strategy used by hedge funds can also be seen as a significant cost because the losses could also be amplified. Furthermore, unlike mutual fund strategies, successful hedge fund strategies are not easily taught from one asset manager to the next, but rather rely largely on the knowledge of a few “star” asset managers. Finally, the development of these strategies requires significant investments of time and resources in order to research the investments.
On 12/9/11, Creative Computers stock price was $22.75 with 10,238,703 shares outstanding, equating to a market value of $232,930,493.25. Creative Computers also had a book value of equity of $48,466,000. On the same date, the Ubid stock price was $35.6875 with 9,146,883 shares outstanding, equating to a market cap of $326,429387.06, and the book value of equity for Ubid was -$3,292,000.
In addition to assuming that Exhibit 2 gives estimates of market values for net working capital, PP&E, other long-term assets, and debt,
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Corporate Valuation 248 Group Project #1
Strategic Capital Management, LLC
-------------------------------------------------
Corporate Valuation 248 Group Project #1
The main benefit of a hedge fund is that an investor can make higher returns with a hedge fund compared to the market returns by using leverage from taking a short position in certain stocks. It is possible for the return for hedge funds to be maintained consistent regardless of whether the market is rising or falling. On average, a hedge fund will typically carry lower risk than the market. However, given the long/short strategy of hedge funds, there still exists a risk for significant losses.
The main costs associated with hedge funds are typically a management fee and a performance fee. In this situation with Strategic Capital Management, the management fee is 2% of assets and the inventive fee is 20% of profits. The leverage strategy used by hedge funds can also be seen as a significant cost because the losses could also be amplified. Furthermore, unlike mutual fund strategies, successful hedge fund strategies are not easily taught from one asset manager to the next, but rather rely largely on the knowledge of a few “star” asset managers. Finally, the development of these strategies requires significant investments of time and resources in order to research the investments.
On 12/9/11, Creative Computers stock price was $22.75 with 10,238,703 shares outstanding, equating to a market value of $232,930,493.25. Creative Computers also had a book value of equity of $48,466,000. On the same date, the Ubid stock price was $35.6875 with 9,146,883 shares outstanding, equating to a market cap of $326,429387.06, and the book value of equity for Ubid was -$3,292,000.
In addition to assuming that Exhibit 2 gives estimates of market values for net working capital, PP&E, other long-term assets, and debt,