FOR CAMPUS ENGAGEMENT USE ONLY – NOT FOR FURTHER USE AND/OR DISTRIBUTION TO
CLIENTS OR THE GENERAL PUBLIC
Important Instructions:
1. Please read the below case carefully and answer all the questions
2. Upload your answers in PDF document on the link provided in the email
3. You will be evaluated on your approach towards solving the below problem
4. You are allowed to make a single submission individually
5. Save your file using the following naming convention:
Full name_Name of the College_<Name of the case study (Quant/CS)>
6. The deadline for the submission is 26th February, 2022
Manager Selection for Alternative investments
A critical part of investing is selecting the right investments that are in line with your investment
philosophy. Our problem focuses on manager selection for the Alternative Investments Group (AIMS) at
Goldman Sachs Asset Management. Managers in our case, are mutual funds that we’d offer to clients as
constituents to allocate capital to in their portfolios.
A mutual fund is a financial vehicle which collects a pool of money from investors to invest in securities
as per its investment mandate. When tracking performance, we’d expect a fund to track a benchmark
index (for example the Sensex or the Nifty 50) and measure its outperformance against the benchmark.
Another important concept is that of a universe. A universe is a collection of mutual funds with a similar
investing philosophy along a certain dimension. For example, a large cap universe consisting of mutual
funds that invest in large cap stocks. We will be referring to mutual funds as funds going forward.
The AIMS business will monitor funds on an ongoing basis in various different sectors, and help
construct well diversified portfolios1 from its selection of funds deemed good. If funds deviate from their
investing philosophy or underperform consistently, they may be removed from our list of funds
recommended to clients.
Problem statement:
We’d like you to propose a quantitative framework to select funds from a universe, and monitor them
on an ongoing basis, with criteria for removal from the AIMS platform.
It can be assumed that all historical returns are available for all funds and their benchmarks. Returns are
the change in price of an investment. We will have time series of returns for each fund every month
from when the fund started. Similarly, there are time series of returns for each benchmark in question.
Along with this, we also have a set of time series that try to capture some market and macroeconomic
factors. (for example – interest rates, commodity prices, benchmarks for different sectors, etc)
A naïve approach to selecting managers is to look at the funds with maximum absolute returns since
inception. However, this quickly fails since we could have funds that launched in different time periods,
and comparing their performance directly, would not make sense. So we need an approach that
considers various concerns such as different time periods of funds since inception, how they performed
during different periods of the business cycle, adjustments for risk taken by them to enumerate a few.
1
Diversification does not protect an investor from market risk and does not ensure a profit
FOR CAMPUS ENGAGEMENT USE ONLY – NOT FOR FURTHER USE AND/OR DISTRIBUTION TO
CLIENTS OR THE GENERAL PUBLIC
The material provided herein is for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any
securities relating to any of the products referenced herein, notwithstanding that any such securities may be currently being offered to others.
Any such offering will be made only in accordance with the terms and conditions set forth in the offering documents pertaining to such Fund.
Prior to investing, investors are strongly urged to review carefully all of the offering documents.
No person has been authorized to give any information or to make any representation, warranty, statement or assurance not contained in the
offering documents.
Conflicts of Interest
There may be conflicts of interest relating to the Alternative Investment and its service providers, including Goldman Sachs and its affiliates.
These activities and interests include potential multiple advisory, transactional and other interests in securities and instruments that may be
purchased or sold by the Alternative Investment. These are considerations of which investors should be aware and additional information
relating to these conflicts is set forth in the offering materials for the Alternative Investment.
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