Strategic Capital Management,

LLC (A)

Group 6
Aditya Singh: PGP09128
Nimisha Verma: PGP10034
Siddharth Pal: PGP10051
Simran Verma: PGP10052
Suraj Chaudhary: PGP10058
Hedge Funds Event Driven
Strategies

A hedge fund is an investment fund that trades in relatively

liquid assets and is able to make extensive use of more
complex trading, portfolio-construction and risk management
techniques to improve performance, such as short selling, Relative Value
leverage, and derivatives Strategies

Invest in: Types of Hedge

Funds
Equities Bonds

Macro
Currencies Commodities Strategies

2 and 20 manager compensation scheme: Equity Hedge

Fund
Which gives the hedge fund manager 2% of the assets Strategies
and an incentive fee of 20% of the profit every year

2
About the Strategic Capital Management LLC

Started by Elena & Incentive fees of

two of her classmates 20% of profits

Hedge fund Management Fees

firm of 2% of AUM

Lock in period Raised $20

of 2 years million

3
About Ubid and Creative Computers

It also dabbled On Ubid people

into selling from all over the
products through world could bid
retail stores, but on computer
Creative it failed in that peripherals and CC decided to
Computer was a endeavour components sell 20% in an
catalog initial public
distributor of offering. 80%
computers and was planned to
computer To raise be given to CC
peripherals Ubid was an awareness and shareholders
internet auction accurately price
firm a subsidiary their shares they
of Creative decided to carve-
Computers out their internet
subsidiary

4
Financial Performance
4 December, 1998
3 December, 1998 It reached a market
Shares publicly traded
Ubid sold 1.817 capitalization of $439
for $38 more than
million shares for $15 million on its very
double the IPO price
per share and closed at $48 first day

Q3 Sales: $15.3 million

Like many other
Growth over Q2: 127%
internet companies,
Growth over Q1: 637%
Ubid had rapidly
Pre tax loss of $1.1
growing sales
million for Q3

CC achieved a
quarterly net sales of
$186 million in Q3 a
39% increase over
the previous year Q3

5
Recommendations
The strategy should be to take a long position in Creative Computers and a short position in Ubid

The long/short equity strategy is an investment strategy that takes long positions on shares expected to
appreciate, and short positions on stocks that are expected to decline

Elena is likely speculating that Ubid is currently overvalued relative to its future earnings potential and, as such,
goes short on Ubid. At the same time, Elena is likely aware that Creative Computers holds the other 80% of Ubid
equity and will go long Creative Computers stock in order to take advantage of risk arbitrage in the equity carve-
out.

The Market Value of Ubid and Creative Computers seems to be very unreasonable with respect to the assets
associated with each company. The assets of Ubid are only $31,448,000 and not proportional to its high equity

Creative Computer has a total asset of $403,975,000 and is not comparable to its total equity. As Creative
Computer has 80% shares of Ubid ownership, the parent company's price must be higher, and it does not reflect
the company's total assets. Creative Computer should have a larger market capitalization.

6
Thank You