Asia Alpha Management (B): Tackling a Volatile Market

• Main Authors: ZERRILLO, Philip Charles, DEARTH, Matthew Louis
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Asset management; Portfolio management; Financial analysis; Financial strategy; Valuation; Other Financial Vehicles; Marketing
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/270; https://smu.sharepoint.com/sites/admin/CMP/cases/SMU-19-BATCH [PDF-Pic]/SMU-19-0013 [Asia Alpha]/SMU-19-0013B [Asia Alpha B].pdf
• Institution: Singapore Management University

The case is set in April 2018 when, after a 5-year streak of investing success and resultant strong asset inflows, the performance Asia Alpha Management Pvt. Ltd. (AAM), a fictitious hedge fund, begins to lag from the beginning of the year. AAM’s co-Founder and Chief Investment Officer, Royston Lim, is struggling to decide what to do with three large positions in his portfolio that are underperforming. Each of these positions is constructed to illustrate the real-world impact of behavioural bias on investment management. Case (A) provides background information on the firm and detailed information on the three positions. After a class discussion on Case (A) to decide what Lim should do, Case (B) describes what actually happened. The concept of behavioural bias is introduced through the subsequent discussion of why Lim made the decisions he made. The two cases will (1) introduce the basics of fundamental equity long/short investing as practiced by hedge funds in Asian markets; (2) prompt students to propose investment recommendations and defend their decision processes; (3) facilitate understanding of common behavioural biases and their impact on investment decisions; (4) explain how biases may result in suboptimal investment decisions, and (5) provide advice for how to reduce the tendency to fall into such “decision traps”.