Some Preliminary Comments on the Virtual Portfolio Project:
The Virtual Portfolio Project is an assignment that will be ongoing throughout the semester. The first related assignment is the Mission Statement Presentation, and other assignments and activities will follow as we go through the term. You will be working on this project as part of a 4 – 6 person team.
For the competition, your team should put yourselves in the position of the management team for a start-up hedge fund that has $20 million in seed capital with which to get established and start investing.
As a hedge fund, you face a largely unregulated environment (although this is changing as a result of the efforts of Eliot Spitzer and others), and you don't necessarily have to engage in hedging activities per se. You could engage in hedge-type investing, such as a long-short equity fund that tries to hedge away market risk, but you could also simply operate like a small-scale equity mutual fund, simply trying to place the right bets on the stock market (which is closer to how Warren Buffett got his start). Also, you are allowed to purchase on margin and to sell securities short.
Although there are no specific restrictions on the operation of your fund, you must always take into account both the need to attract and retain investors to your hedge fund and the need to be able to stay in business without "blowing up" your fund. Toward this end, part of your grade on this project will be determined by the clarity and "reasonableness" of your mission, strategy, objectives, guidelines, and investment process, and part of the grade will be determined by how consistent the fund's investment activities over the term are with these guiding investment principles.
Final comments for
Presentation = you should view yourselves as making your presentation to a collection of potential investors in fund – trying to sell yourselves to these potential investors and let them know who you are and why they should be willing to consider investing in you.
Note: some additional comments are provided in the last slide of the posted sample mission statement.