Equinox Asset Management Case Study

1387 Words Nov 16th, 2014 6 Pages
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
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20% of a small fund can be too little for Equinox. If Equinox targets large funds, it can only hold
1% to 5% of them. Large pension funds may not be willing to separate its asset into small pieces because it will rise the cost of management.

Equinox’s marketing point
The most attractive marketing point should be the fee structure. Equinox’s MER is much lower than other pension funds. Getting paid based on the return of the fund instead of the size can effectively eliminate the agency problem since it aligns the interest of clients and managers. Clients can see greater opportunities to get higher return by investing in Equinox.

2

Equinox should provide lower MER or it can show no strength compared to the existing big pension funds.
Option 4 is too risky for Henne given current market environment. He may not be able to cover the cost if the market has not come out of the downturn.
3 Equinox needs $52.5 million to cover the fixed cost if Henne chooses option 2 and $105 million if he chooses option 1
4 A medium size fund of $30 to $50 million has little difference in return based on fund size no matter Henne chooses option 1 or 2.. Henne also appears to be pretty confident in the performance of Equinox. So it can be more profitable for Henne to choose an option with higher performance fee based on excess over returns.

Appendix:

Chart 1: Information of Six Funds in Exhibit 3
London
Life
Canadian
Equity

RBC
Canadian
Equity

CIBC
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