Finance, Accounting and Control Case Study

Lipper Fund

OR

Abstract:
The US-based Lipper Fund began as a conservative and low-risk investment fund. The fund, managed by Kenneth Lipper as a convertible arbitrage fund, was the prey of mispricing. The majority of the fund's portfolio consisted of illiquid and risky securities. It was difficult to price these securities due to the non-availability of updated information to find their correct value. Hence the majority of the portfolio used 'manager marks', which emerged with the combination of mispricing and illiquid nature of securities.

Pedagogical Objectives:

To discuss portfolio mismanagement and the concept of 'manager marks', a pricing strategy that ultimately led to the demise of the fund.

Keywords :  Lipper fund, Convertible arbitrage, Lipper convertibles, Hedge fund, Investment grade convertible bonds, Portfolio management, Leverage, Illiquid instruments, Finance Case Study, Market neutral strategy, Junk ratings, Manager marks, Distressed securities, High and low risk securities, Kenneth Lipper, Securities and Exchange Commission