Pied Piper Advisors

Aegis Incorporated is a cable television corporation based in Denver, Colorado. The company employs 4,500 people, most of them in two major media markets -- Boston and New York City. Aegis offers a defined contribution pension plan to its employees. That is, no specific future benefits are guaranteed by the firm, however Aegis commits to a regular contribution to the pension fund in the name of the employee. The workforce is a relatively young one. Average employee age is 32. The current average life expectency is 73 and expected retirement age is 65. The employees are primarily non-union, blue collar and clerical, with jobs ranging from cable installers and electricians to bookkeepers, account managers and a telephone sales force. The management of their pension money, currently $67.5 million is overseen by the pension committee, chaired by Joanne Whitcombe. Aegis allocates assets among a number of investments. The company typically uses an outside consulting firm every three years to evaluate the performance of the mutual fund managers. Aegis currently uses eight equity managers and one bond manager, each of whom has a long track record of performance.

Pied Piper Advisors is a consulting firm specializing in evaluating investment management performance. It publishes information about the behavior of managers over recent years, and also has its own method of measuring performance. The Pied Piper book has quickly become a standard in the industry. Pied Piper collects data on hundreds of currently available managers -- if a fund has been incorporated into another one, then it disappears from Pied Piper's sample. Aegis has been impressed with Pied Piper, and is considering using them to evaluate their fund manager performance. She has copies of most of the Pied Piper analysis on several of the managers in which they invest.

Aegis Portfolio Composition
LaSalle Street Capital MgCore Equity Fund.20
Meridian Trust Company Employee Benefit Fund.10
JP Morgan Investment Managers Small company.05
Neuberger Berman Low Duration.30
Panagora Asset Mgmt Tactical Asset Allocation.05
JP Morgan Investment Mgmt Tactocal Asset Allocation.05
Renaissance Investment Mgmt Tree Way Tactical Asset Allocation.20
Feshbach Brothers Southgate Partners.05

Jedida Baines works for Joanne Whitcombe at the Aegis pension fund. Whitcombe asks Baines to look over the Pied Piper data and to see whether it would be useful in comparison of money managers. Write a report from Ms. Baines' perspective. Include the following:

1) Measure of the beta of each fund and the beta of the portfolio.

2) Estimate the Sharpe, Jensen and Traynor measures for each fund. Consider the confidence bands around these measures. Can you actually distinguish performance. Graph the measures in mean-std space or mean-beta space as appropriate, and place confidence bands around each point in both dimensions.

3) Suggest alternative measures of relative performance across the debt and equity managers. Do the same measures apply to both types? what else would you need to know about the different managers? Use whatever criteria seem appropriate in this context.

4) Two of the equity managers are "tactical allocators." The Ibbotson Attribution program allows you to examine the rolling style characteristics of these funds. Are their exposures to equity and debt changfing through time? Should any of the other funds be considered timers? Is there any evidence that any manager are able to correctly time the stock market?

5) Write a preliminary evaluation of fund performance, according to your own evaluation methods.

5) Make a suggestion regarding future use of these managers. Do you wish to drop some or to reallocate among them? If you were to add managers, what criteria would you use and how reliable do you think they would be?

6) Write a consideration of Aegis' employees' particular needs. This could range from a multi-factor approach to whatever else you might consider relevant. If the Ibbotson bond synthesizer program is available, you may wish to use it to construct a potfolio of liability assets that match the projected future cash needs of the aggregate workforce