STRATEGIC CAPITAL

MANAGEMENT
GROUP -4
JAHNVI JETHANANDINI
SHREYASI HALDER
SIDDHARTHA BAYYE
SWETA SAROJ

HEDGE FUNDS AND THEIR ADVANTAGES

An offshore investment fund, typically formed as a private
limited partnership, that engages in speculation using credit
or borrowed capital
Investors get an opportunity to pool their investment, cutting
out transaction costs and allowing for more diversification
through a very large portfolio
On the other hand, invested capital tends to have low
liquidity, and investors are normally charged a high level of
fees
Limited information availability to investors, as the hedge
fund wants to keep its competitive strategy a secret, this can
lead to increase in risk

STOCK VALUATION FOR UBID AND

CREATIVE COMPUTERS
Creative Computers:
Stock market valuation of Ubid is
roughly $232,930,000
Creative Computers has an
investment in Ubid that makes
up 56% of its total assets

Ubid Inc.,:
Stock market valuation of Ubid is
roughly $326,541,000
Ubids market valuation creates
a goodwill account that is about
98% of its total assets
Hence, Ubid detrimentally risky
to its equity holders

Creative Computers in a position which is

highly dependent on Ubids performance.
Hence, investors in Creative feel to have
more command.

PERSPECTIVE FROM ELENA AND WHAT HAS

TO BE DONE?
Elena should not purchase Ubid or Creative Computers
because of the risk involved with arbitrage
The mispricing with creative lead to worsen longer than the
hedge fund can remain solvent
Ubids stock is likely to crash when the mispricing corrects
itself and buying a Ubid stock is also risky
Ubid has still not proven positive earnings and could
eventually default on their loans. Also, book-value-wise
has a negative stockholders equity value means that if Ubid
does default, their equity holders would receive no
compensation
We would suggest that Elena buy convertible debt in
Creative Computers because of a small downside and a
potentially huge upside, since she gets high interest feefee
because convertible debt is lower in the capital structure
and Creative Computers has a very high default risk

DISADVANTAGES WITH THE SUGGESTED

STRATEGY
Higher priority (senior) debtholders or Elena take control of
Creative Computers, Creative Computers could go bankrupt
and be forced to liquidate without enough of a liquidation
value for Elena to break even
Another possible consequence is if Elena converts the debt
into equity and then CC fails while Strategic Capital
Management is holding the equity leading to lose a
significant amount of investment from hedge fund