Company Profiles

Blackstone Ltd. is a multi-faceted financial institution that has several arms and subsidiaries all over the world.
It provides nearly all forms of financial services, from acting as a brokerage house to playing an advisory role
and even offering multiple alternative investment products.

Henry & Charles is a private trading house owned by Blackstone Ltd. The company manages funds for its
holding company and aims at the creation of wealth through trading and investment on the bourses.

Campbell Wealth Management Co. is a lender and Asset Management Company (AMC) that caters to both
retail and institutional investors, an investment class in the form of a Fund-of-Funds (FoF) that diversifies its
Assets Under Management (AUMs) into a range of financial products and instruments.

The Trading Fiasco

John Walter was a trader at Henry & Charles. He was primarily concerned with arbitrage trading which gave
him access to a sufficiently large volume of funds. At the end of every week, Henry & Charles had a practice
of evaluating the open positions and holdings that each trader held. The company was very stringent in terms
of its conduct of business and had strict parameters in place. A fixed VaR (Value-at-risk) that was not to fall
below 97.5% on a daily basis, had prompted its traders to focus only on blue-chip stocks or low-risk bets.

Initially driven by the motive of deepening his portfolio’s profits, John decided to work around the established
standard of trading exclusively in blue-chip assets and began opening positions on highly risky bets, at the start
of each week.

Before the end of the week, he would square off his positions and would hold on to only those stocks that
appeased the exchange trading rules. This practice enabled him to secure decently large profits because of which
his trades were not inspected.

Over time, John decided to line his own pockets and began colluding and engaging in insider trading, which
was frequently rife with manipulation. He would buy or sell stocks in certain companies at the behest of
colluders, trading circles, or even the company's management, who desired a change in the price of their stock
for a variety of reasons. He would frequently have to incur a loss in such capacities, but considering his total
gains, his unethical actions were rarely taken into account.

In one such trade, John was instructed to open a position in Prick Cotton Traders worth $60 million at the behest
of a Dubai-based trading group that offered him $600,000. In doing so, he was able to raise the price of the
stock from $60 to $63.7. However, at the same time, Rupert Gray, Founder and CEO of Prick Cotton, sold
holdings worth $150 million in the company amassing a sale of 8% of the total outstanding shares. The market
also reacted to the sale eventually giving a closing price of $54. The entire market was flooded with the news
of such a trade which finally prompted Henry & Charles to take cognizance of this massive hit taken by its
trader.

An internal investigation revealed the true colours of John, and the company was quick to give him the pink
slip. It also decided to book a loss of $6.6 million on the investment (including 1% brokerage).

At the time of John’s dismissal, his pending portfolio showed the following assets:
Name of
HAY Co. Ltd. Peter Exports DLM Ltd.
Company

Sector Construction FMCG Gems and Jewellery

There have been numerous

HAY Co. Ltd.'s true colors
Since its target market in a media reports about at least one
were revealed, as it was
specific country has been gemstone certification
merely a front for the
ravaged by war, crippling laboratory of DLM Ltd. "over-
Chinese government. When
its only source of sale, grading" diamonds. The
HAY Co. Ltd.'s servers were
Peter Exports, which laboratory was recently accused
hacked, the hacker group
would produce processed of grading diamonds using
(who later published it)
and fancy consumer goods, terminology from another
discovered that the data of
has encountered a startling leading grading laboratory,
all stakeholders and
array of problems. Higher which has resulted in a
Crises customers had been
supply costs are another significant drop in the
compromised and was being
source of additional company's reputation.
relayed back to China. The
disadvantage. Tariff Diamonds are graded according
Chinese government was
increases and sudden to their clarity scale. The
using it fraudulently for
inflation have reduced the company's diamonds were
monitoring and surveillance.
share of income available graded as 'Flawless' whereas, in
As a result, several
for spending on high- reality, they belonged to the
companies ostracized HAY
quality consumer goods, category 'I'. This gave the
Co. Ltd., resulting in the loss
resulting in a negative general public the wrong
of contracts and signed
impact on volume. impression, leading to
deals.
widespread criticism.

% of equity
5 9 10
held

Total
Investment
$35 million $30 million $45 million
in a
company ($)
The Safe Realizable Value is 25%, 45%, and 22.5% of Hay Co. Ltd, Peter Exports, and DLM Ltd. respectively.
Additionally, a cash balance of $53.4 million was also recovered from booking the loss of John’s trade in Prick
Cotton.

The Lending Mistake

Yuri Miners, a global exploration and mining company focusing on the development of high-grade mineral
deposits, faced a cash dearth. It approached several financial institutions with the intention of raising funds,
including Campbell Wealth Management Co. Campbell Wealth Management Co. had agreed to lend it $40
million, even though the company was neither profitable nor showed any major prospects of growth but given
its requirement to fund its business, it agreed to pay a corporate interest of 15% to secure the loan. It had a
total requirement of $95 million, of which, after protecting its Cash Reserve Ratio, Campbell Wealth
Management Co. could only provide $40 million and as a result, it was forced to approach other lenders to
compensate for the balance amount. DGB Bank Singapore and Clinton Co. had agreed to cover the remaining
amount equally, wherein Campbell Wealth Management Co. had agreed to act as the guarantor. However,
they did not reveal the complete and true picture of the risky debt. Initially, Yuri Developers was very prompt
in its payments, paying back over $15 million of the loan component alongside the interest charged, but as
time passed, the nature of their business met with several downfalls, and finally, within two years of the loan,
Yuri Developers collapsed. The two lenders called out Campbell Wealth Management Co. for repayment.
Only over $7.5 million was recovered from the sale of the assets of Yuri Developers, of which over $3.1
million was taken up by Campbell Wealth Management Co. and the rest was divided between DGB Bank
Singapore & Clinton Co.

The Disruption of Funds

Campbell Wealth Management Co. had a successful Fund-of-Funds by the name of ‘Shark Money’. The Fund
had entered into a deal with several Hedge Funds such that the Hedge Funds would pay them the brokerages
and fees they collect and in turn, Shark Money would continue investing into their fund at least 40% of the
total value, thereby expanding their AUMs (asset-under-management) thereby making more cash available at
their disposal. This brokerage was due and was to be paid in the near future.
 Table showing some investments and changes in Hedge Funds by Shark Money

Hedge Initial Annual Change in Annual Change in Annual Change

Funds investment returns investment Returns Investment returns in Investment
($, Mil) (Year 1) ($, Mil) (Year 2) ($, Mil) (Year 3) ($, Mil)

Kopen 4.5 12% + 0.5 17% -4.0 21% +3.0

Sigma 3.5 15% +1.0 14% +1.5 13.75% +0.5

Indium 8.0 11% +3.5 12.5% +3.5 11% -2.15

Platypus 9.5 13% +2.5 13% -2.0 12.5% +3.75

Longwill 4.5 20% +3.5 11% -2.0 8% Liquidated

[Note:- Indium Flex Cap Fund and Platypus Multi Cap Fund had entered into a deal with Shark Money to pass
on their brokerages.]

Campbell Wealth Management Co. had invested heavily in another fund manager by the name of Apex Co
and launched a hedge fund that had emphasized a great weightage to Prick Cotton in its investments. However,
upon the sale of the stock by Mr. Rupert Gray and the consequent reaction by the market, the overall
performance of the Hedge Fund was highly disrupted. It was consequently liquidated at heavy losses for Apex
Co. The stock price of Apex Co. crashed, and the investments made by Campbell Wealth Management Co.
were reduced to a few pennies in the dollar.
 Apex Company Return on Investments

Name of Company Returns of Company (%) Time Period

Prick Cotton Traders 34 1 year

Motor System Pvt Ltd 19 1 year 6 months

Affinity Co. 23 1 year 1 month

Oil Neuter Co. 25 10 months

Ace Ltd 12 2 years

Nexus Co. 18 8 months

Eventually, the parent company, Blackstone Ltd. entered into a considerable loss due to unyielding returns of
its funds, thereby creating a temporary cash-flow shortage. The company, therefore, decided to direct a certain
proportion of cash invested in the Shark Money F-o-F into its own internal reserves. However, this received
backlash from the Hedge Funds, upon realizing that they were not receiving any new cash flow from Shark
Money. They refused to pay the brokerage fees that they had collected. This caused an additional problem for
Campbell Wealth Management Co. as not only did this affect the expected injection of funds but also caused
a future plan of investment to fall through, which was largely reliant on the expected income of the brokerage
revenue.
Task at Hand

1. After taking a hit in the trading world, the company has decided to review the investment positions held by
John or alternatively invest in different kinds of companies.

The list of alternative investments is mentioned below:

Name Czech LLC Lightning Bolt Co Perambulator Geoffrey Lindt
of Company Ltd. Co

Maximum
Position 20% 10% 15% 5.5%
Possible

Valuation ($) 400 million 900 million 650 million 1500 million

Core Business Stock Trading Electronics Child Services Chocolates

Crisis Unable to cater to

2 of its several
Has had its market the demands of
Faces an avid products have
share largely eaten the customers due
shortage of funds been accused of
by sharks like to radical steps of
given the lack of being substandard
Amazon and other modernization
popularity of the forcing the
e-commerce which killed the
firm’s trading app. company to
giants. It is also originality and
The app too is said to perform a recall
losing money on taste of the
be riddled with a of over 500,000
its in-house product. Faces a
poor System UI units. It is also
electronics brand fund shortage due
which makes it considered highly
‘Coco’ at a very to heavy capital
unpleasant to use. controversial
fast rate. expenditure with
amongst mothers.
poor planning.

Strength Still has a

hundred-year-old
Has a first-mover legacy that
Has a very strong
Has huge potential to advantage and a resonates with the
mesh network of
grow due to soaring very good nostalgia of its
warehouses and
market size. management customer base
supply chains.
team. which is
extremely loyal
to it.
 Make an investment strategy, keeping in mind that you can only liquidate up to the Safe Realizable Value
of the investments that have already been made.

2. Campbell Wealth Management Co., is facing a financial crisis given the paucity of cash flow due to the
hedge funds disruption. The collapse of Yuri Miners and their consequent inability to repay their loans has
added to the muddle of Campbell Wealth Management Co. which was also acting as the guarantor to DGB
Bank Singapore and Clinton Co. How will Campbell Wealth Management Co. face the impending liability
given that only a meager portion of the loan amount was recovered by the sale of Yuri Miners’ assets in this
current situation. Draft a financial plan to come out of this catastrophe?

3. How will Blackstone Ltd manage the insufficient cash reserves in Campbell Wealth Management Co. given
that the latter has faced huge losses on different frontiers such as -
i) Loss and manipulation due to trading by John Walter.
ii) A massive financial crisis due to the default in repayment of Yuri developers.
iii) A disruption in the Fund of Funds along with the fall through of brokerage revenue due to the violation
of the brokerage deal.