Advanced Topics in Capital Markets: Alternative Investment Strategies

2019-1: Professor Neil Paragiri

Long/Short Equity Fund Portfolio Investment Guidelines

1. Assume a risk free rate of 5% (annual).
2. Use 252 days for the total number of trading days in 2019.
3. Benchmark COLCAP
4. Gross Long Exposure (Max limit) = 150% (Leverage)
5. Net Exposure (Range) = 20% to 70%
6. Minimum number of positions in the portfolio = 6
7. Minimum number of short positons = 3
8. Largest single position size = 15% of the capital

9. Date for establishing initial (base) portfolio (names, weights, longs and shorts): March 22 using
prices from March 21. The position names, weights, Longs and Short must be emailed to
neil.paragiri@gmail.com no later than March 24.
10. You can rebalance the portfolio on the following 2 days: March 26t.h (using closing price of
March 25th) and March 28th (using closing price of March 27th). You must email the portfolio
data (names, weights, longs and shorts) at each of the dates (on March 26th and March 28th)
to neil.paragiri@gmail.com
11. Close portfolio on March 28th (using March 28th prices)
12. Gross exposure, long exposure, short exposure, net exposure, Top Long position, Top Short
position, # of Longs, # of Shorts.
13. For fund performance, we ignore the management and performance fees charged by hedge
fund managers for the sake of simplicity.
14. We also ignore any dividends paid out, capital gains paid out, margin interest, and other NAV
related calculations to keep the analysis simple.

Blackboard has 4 different manager reports available for your review. These should serve as a template
for generating your own manager performance reports. These templates should be used only as a guide
and you should strive to develop your own portfolio report. Your portfolio report should consists of as
many as the following parameters:

a. Characteristics of the fund

b. Investment Philosophy
c. Investment Guidelines
d. Volatility (investment period and annualized)
e. Historical performance of the fund (investment period and annualized)
f. Beta (vs. COLCAP)
g. Sharpe Ratio
h. Correlation Analysis of your final holdings
i. Portfolio exposures (Gross %, Long %, Short %, Net %)
j. Top-3 Long (Names, % of the fund)
k. Top-3 Shorts (Names, % of the fund)
l. Sector exposure (% Long, % Short)
m. Total Number of positions (# of longs, # of shorts, cash)
n. Largest positions discussion
o. Worst 1-day return
p. Best 1-day return
q. # of positive days
r. # of negative days
s. Performance graphs (fund, benchmark)
t. Etc. Etc……..