The Smart Cube provides regular fundamental research support to hedge funds. We add value to hedge fund investment decisions by conducting in-depth fundamental analysis according to the investment styles of the hedge funds we work with. We did an analysis for the largest IPO in India where the client wanted to estimate achievable IRR on the power projects for which capital was being raised. We estimated some key assumptions such as revenues, margins and cash flows, based on industry benchmarks and expectations on the power sector going forward and prepared a model to estimate IRR. This was done in an extremely crunched time-frame as the IPO was just around the corner. We realise that our clients' time is valuable and so we work harder to make crisp and relevant reports, cutting through the clutter of hundreds of pages of literature about the company and industry under study.

Equity research analysts typically have their hands full with analyst meetings, conference calls and client interaction. This is where The Smart Cube comes in to help them cover more companies and release reports faster. We are supporting one of our investment banking clients with increasing coverage on emerging markets. For an initiating coverage report, we prepared a detailed DCF model and also did sum-of-parts and peer valuation to arrive at an approximate intrinsic value for the company under study. The report was ghost-written by us so that the client could provide specific overlay on top.

Higher ROE leads to a higher valuation, or does it? For a Wall Street investment bank, we probed further into why the empirically proven relationship between ROE and P/B does not hold true for reinsurers vis-a-vis insurers. We sliced and diced over 20 years' data on approximately 100 insurance and reinsurance firms, using regression, cross-tabs and control groups to test the various hypotheses. The results were shared with the end client, a Bermuda-based reinsurer, which then acted on the findings by considering a diversification into insurance.

An investment banking client wanted to launch new research products on emerging markets but did not have sufficient in-house capacity to do so. We suggested a retainer relationship with The Smart Cube for the two types of skill-sets required for the project - financial research and automation. The project was executed over three months, a significant improvement over expected timelines based on previously released reports. The team listed the different analyses to be covered, collated data, structured files, created the template, tested and automated, all of these in regular consultation with the client. The report is structured by geography (three regions and 17 emerging markets), and covers fund flows, market breadth and other indicators, on a monthly basis.

The trading side of an investment bank regularly engages with The Smart Cube to develop technical analysis/ trading tools. The client wanted an automated tool which would provide the flexibility to compare prices (for all stocks in an index) with three custom moving average periods entered by the user, and display all this information through charting. The output also includes a relationship between price and moving averages. The tool is currently being used to support calls on market/stock direction.

An investment banking client wanted to test a hypothesis on stock movements in emerging markets. Our approach was to track certain fundamentals and RSI for a set of stocks through the client's proprietary software tool, with the objective to prove the lead-lag relationship between these fundamentals and RSI. We back-tested stock movements to establish the relationship for various sectors and geographies. The client uses an understanding of this hypothesis to take long or short calls on a sector/ stock based on anomalies.

The private equity arm of an investment bank was interested in acquiring a company engaged in a niche segment of the food and water sterilization market. The Smart Cube conducted a pre-deal industry due diligence. After four weeks of intense primary and secondary research, the team generated insights on profitability, growth potential, market dynamics, transaction multiples and the overall competitive landscape. With input from industry experts and academicians, The Smart Cube estimated market size for the overall market and segments therein. For private equity clients, The Smart Cube regularly carries out analysis of new and emerging industries on which little literature is available in the public domain.

An investment banking client wanted to assess the attractiveness of the biofuels sector globally. The Smart Cube assessed the biofuels opportunity, estimating market size, developing an industry report on each of the key geographies and short listed key stocks of interest.
The four month long study was conducted in three phases. Phase one involved a bottom-up sizing of the industry. The next phase involved extensive modeling of the supply side, demand side limits on biofuels production and impact of agricultural commodity prices. Conclusions were established in the final phase - market size, trends, regulations, value chain analysis, environmental implications and likely future scenario.

• Construction of Yield Curves

  Derived spot and forward curves for emerging markets using information from money markets, swaps or forward rate agreements by bootstrapping the securities in ascending order of maturities. The shape of the forward curve facilitates various curve trades.

• Pricing OTC Options

  Priced various types of over-the-counter options like equity options, index options, FX options, and exotic options. Market data was used to generate a volatility smile curve; this helped price a European style option with a given strike and maturity.

• Relative Value Modeling

  Derived relative value opportunities between cash bonds spreads and CDS, as well as curve steepener /flattener trades on CDS based on roll down and carry effects.

• Pricing Volatility Swap

  Pricing of a volatility swap by calculating the realized volatility from the daily price movement till date and the implied volatility from the option data.

• Loan Spread Calculator

  Built an automated loan spread calculator in VBA to derive the spread on a loan by using Newton Raphson method

• Database Updating and Maintenance

  Updating and maintenance of a large Collateralized Loan Obligation (CLO) database with all new deals and creation of a monthly report based on collateral type, Over-collateralization and Interest Coverage Tests, sector and geography etc