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Bea Associates

In: Business and Management

Submitted By lilanhua73
Words 4619
Pages 19
Harvard Business School

9-293-024
Rev. December 16, 1994

BEA Associates: Enhanced Equity Index Funds
On the afternoon of July 13, 1992, Messrs. Jeffrey Geller and David DeRosa, derivatives portfolio managers at BEA Associates, were considering alternative ways of investing the assets of a new $100 million enhanced index account. They wanted to find the most attractive combination of derivative and cash market positions to achieve the client's objective which was to outperform the S&P 500 stock index by 50 basis points in a low risk manner. The alternatives included the use of over-the-counter equity swaps, a relatively new financial instrument that had proliferated in recent years.

BEA Associates
BEA Associates was an investment advisory firm founded as Basic Economic Appraisals in 1934. As of March 31, 1992, the firm managed $15.4 billion representing over 164 institutional clients. Its separate accounts clients were principally corporate, public, and multiemployer pension funds, and foundations and endowments. BEA also managed several mutual and commingled funds, and a number of closed-end country funds. The firm employed 33 investment professionals—most of whom had 10 years or more of experience—and 76 support staff. BEA offered a variety of specialized investment management services grouped under equities ($3.4 billion), fixed income ($5.6 billion), derivative-based strategies ($5 billion), and international equities ($1.6 billion). (See Exhibit 1). The firm boasted strong performance records in each of these product areas. BEA also offered clients investment consulting services in the areas of hedging and asset/liability management, pension funding and asset allocation, and transactions cost measurement, all fields in which the firm considered itself to be an innovator and industry leader.

Derivatives Management
BEA's investment philosophy was to...

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