Financial Product Mix for Capstone Asset Management

October 31st, 2011

Client: Capstone Asset Management Co.
Team: Mallory Harrison, Natalie Jaroski
Faculty advisor: Dr. Barr   Year: 2010
Documents: Final report (PDF), Presentation (PDF)

Capstone is a privately owned investment advisory firm in Houston, TX that offers privately managed accounts to achieve client’s financial objectives. They currently manage over $3.8 billion in assets for about 3,000 different clients. They provide products and services through three distribution channels: brokers/advisors, institutions/corporations, and high-net-worth individuals. Revenues are generated by marginal product fees associated with assets under management allocated by product.

Capstone has in place a detailed budgeting process but desires to expand the process to include financial modeling to measure profitability by product. Our goal for this project is to develop a model that would calculate existing profitability on assets under management by product. Our second goal is to develop an optimization model that takes into account the revenues and expenses associated with sales of existing products versus the revenues and expenses associated with the development of new products. The final output of the optimization model is to identify the most profitable mix for new product sales.

While every product under Capstone’s management was found to be profitable, this model shows how to optimize the product mix and increase revenues back to the company. Prior to this project, Capstone looked at their budgeting process as an accounting debit/credit process but as a result of our work done they are now focusing on the marginal cost of an additional new account. This helps them concentrate their efforts in the future. For example, early conversations indicated that their focus and belief was that the mutual funds product were most likely the most profitable; this analysis found them to be profitable but in the middle tier of their product suite.

Comments are closed.