Q5. James Corby and Paul Neiberlein are investment advisors for the money management firm of Gael Investment Advisors. Gael Investment Advisors is a firm with 28 investment advisors started by Corby in 1982. The firm has $730 million under management. Neiberlein became partner of the firm in 1993. Gael specializes in providing advice to executives with high net worth. Although the executives demand customized services, Gael has found this market niche to be very profitable.

Corby and Neiberlein are providing investment advice to Dave Cegelski, who is 39 years old and the CEO of a technology firm, Reston Technologies. Cegelski started the firm in 1991 and took it public in 1999 so that he could liquidate some of equity and diversify his portfolio. Cegelski’s liquid assets are minimal. Due to the high risk of the technology industry, he would like to decrease the risk of his financial assets.

Cegelski still holds the majority of his wealth in Reston Technologies stock as it accounts for roughly 60 percent of his portfolio. However, Cegelski does not want to send a negative signal to the financial markets. Reston Technologies is now a mid cap stock that is closely watched by analysts. Furthermore, Cegelski does not want to relinquish control of Reston Technologies stock because he is concerned that a hostile investor may attempt to gain control of the firm. However, he would like to achieve the diversification of his portfolio quickly, because he is concerned about a downturn in the technology sector. He also wants to be able to have the funds necessary for his children’s college education, which begins in three years.

Tom Cecil is another client of Gael Investment Advisors. He is 45 years old and the primary owner of Irvington Beverage Distributors. Irvington Beverage Distributors holds the exclusive rights to distribute several brand name alcoholic beverages in a three state area. Cecil bought his ownership stake from his uncle eleven years ago. Besides Cecil, the only other owners are friends, family, and private investors. The Irvington ownership position constitutes about three quarters of Cecil’s portfolio. Cecil would like to diversify his assets in a tax efficient manner because he is in the top tax bracket. He is single with no children and no immediate liquidity needs.

Over lunch on the following day, Corby and Neiberlein discuss the attractiveness of alternative investments for their clients, including real estate, private equity, commodities, managed futures, and distressed securities. Corby notes that the standard deviation of managed futures is generally less than that of equities but greater than that of bonds. Corby also states that the correlation between managed futures and equities is low and often negative.

Neiberlein states that the Sharpe ratio is inappropriate for hedge fund evaluation because the returns for hedge funds are often serially correlated, which artificially increases the standard deviation.

Which of the following best represents Cegelski’s risk exposures?

A)   Cegelski’s main exposures are to systematic risk and unsystematic risk.

B)   Cegelski’s main exposures are to systematic risk, unsystematic risk, and liquidity risk.

C)   Cegelski’s main exposures are to systematic risk.

答案和详解如下：

Correct answer is A)

Cegelski’s main exposures are to systematic risk and unsystematic risk. He has unsystematic risk because his portfolio is poorly diversified. The Reston Technologies stock is publicly traded so, although he does not want to, he could liquidate his shares publicly.

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