Question 1
What is Maverick Capital’s strategy?
Maverick Capital is a long/short equity investor in the market. Maverick Capital was a hedge fund that employed the long/short strategy which was aimed to reduce the net exposure of the funds to the sector rotations, market and the other macroeconomic influences within the market. The investment professionals of Maverick Capital were completely free to focus on the selection of the individual securities from the market by reducing the impact of the market.
The strategy of long/short was followed by Maverick Capital by long bias existed at the company and there seemed to be a number of reasons for this. For instance, the investment professionals of Maverick Capital believed that shorting the equity had a number of inherent disadvantages such as the stock had to be recalled, borrowed and it was also subjected to the market based restrictions, short squeeze and the rules and regulations around the different jurisdictions of the world. Furthermore, a short position required constant pressing and the upside of the short could not exceed 100% while the downside was limited. Therefore, the strategy of Maverick Capital was based on the belief that the market would appreciate over the long term and therefore, they considered the positive bias of the market as being prudent.
Maverick Capital Harvard Case Solution & Analysis
The capital was allocated by Maverick Capital on a stock by stock and bottom up basis and all the allocations made by the fund were reviewed on a daily basis. The ultimate authority of capital allocation was in the hands of Ainslie however; the sector heads were allowed to invest around 0.5% of the total funds’ assets without seeking any sort of approval. Each day Ainslie would review the risk and return of the fund and he ensured that the size of the fund was commensurate with the opinions and decisions made by the sector teams and their opinions about the risk and returns for each of the investment from the current prices.
Question 2
Why is Maverick a “hedge fund?” Against what is it hedged?
Maverick Capital is a classic hedge fund and it sought to reduce the exposure that was faced by the broad market and they achieved this by offsetting the long equity positions with the short equity positions. Usually the fund assets included the investments that had been made by the fund managers in equity only. Maverick Capital hedged against the market movements and it did this on the basis of the correlation between the short and the long positions.
A balance was achieved by the investment professionals between the shorts and the longs in terms of liquidity, market capitalization, beta, industry and the region. Maverick Capital did not perfectly hedge all of its position in the long assets however, the company preferred a position in which it retained some of the net exposure that was faced by the company as a result of the market.
In order to perform the hedging of the invested funds, the correlation between the long and the short positions was an important factor however, correlation without the desired performance was anathema to Maverick’s approach. The Maverick team selected shorts using the same approach as longs and expected the shorts to add value. Ainslie had always emphasized on making each investment a great investment and this the firm achieved by avoiding the pairs trading...................
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