Zeus Asset Management, Inc

In May 1998, the director of Research at Zeus Asset Management is reflecting on the current performance evaluation of Zeus's mutual funds (which include an equity fund, a bond fund, a balanced fund, and an international fund) and ways to improve the measurement of performance. Zeus has become increasingly aware that absolute returns, or relative returns (returns relative to a benchmark), will not suffice as a measurement of performance and that a measurement (or a series of measurements) of risk-adjusted performance must be added. Performance evaluation is key to structuring compensation and incentive schemes in general, as well as strategic planning for the company's future. Given Zeus's relatively risk-averse clientele, the “correct” measurement of risk is imperative. Students are asked to compute several measures of risk-adjusted performance. Familiarity with running regression models in Excel is required; alternatively, the case can be used to pursue that objective. The case comes with an Excel spreadsheet containing the relevant data (time series of returns [net of risk-free rate] of three mutual funds and corresponding benchmark indices). The case can be used as a vehicle for discussing several concepts: (1) the alternative measures of performance evaluation for mutual funds and their relative merits (e.g., why absolute or relative returns may not reveal the entire truth about performance; which index to use as a benchmark); (2) the alternative measures of risk-adjusted performance (e.g., Sharpe's ratio, Treynor, Jensen's alpha, Gruber's Four Factor alpha, Graham and Harvey's measure of risk-adjusted performance); and (3) the idiosyncrasies of managing portfolios for individuals with particular needs (e.g., tax, liquidity). Excerpt UVA-F-1232 Rev. Apr. 30, 2019 Zeus Asset Management, Inc. In January 1998, John Abbott, the director of research at Zeus Asset Management, Inc. (Zeus), reflected on the changes that had occurred during his two and a half years at Zeus. He was quite pleased with the recent performance of Zeus funds and the company's relationship-oriented approach to money management for individuals with high net worth. Yet, he wanted to ensure that both the investment-process and performance-evaluation measures he had implemented at Zeus would continue to provide superior returns. Abbott also wanted Zeus to outperform the relevant indices, not only on an absolute basis, but also—and more important—on a risk-adjusted basis. He pondered which indices and models Zeus should use in the future. The Company Zeus was founded in 1968 in Atlanta by Tim Landon and Jerry Schneider. As the privately managed asset market evolved, the need for modern portfolio management became apparent. In response to the Employee Retirement Income Security Act's (ERISA's) deregulation, Zeus emerged as an independent, employee-owned, money-management firm that serviced both institutional and individual investors. With more than $ 1.7 billion in assets under management, it was one of the largest private investment-counseling firms in the Southeast. The firm's investment philosophy was based on the belief that superior investment results could be achieved over many years by following a conservative, risk-averse, quality-oriented approach to investment management. . . .