Alternative Investments
The CFA Institute Series
1. Edition March 2022
672 Pages, Hardcover
Wiley & Sons Ltd
The complete guide to alternative investments, from experts working with CFA Institute
Alternative Investments is the definitive guide to understanding non-traditional asset classes. Alternatives are a disparate group of investments that are distinguished from long-only, publicly traded investments in stocks, bonds, and cash (often referred to as traditional investments). Alternative investments include real estate, commodities, infrastructure, and other non-traditional investments such as private equity or debt and hedge funds. They are attractive to investors because of the potential for portfolio diversification resulting in a higher risk-adjusted return for the portfolio.
Alternative Investments and its accompanying workbook (sold separately) lead students and investment professionals through the many characteristics of non-traditional assets, including:
* Narrow specialization of the investment managers
* Relatively low correlation of returns with those of traditional investments
* Less regulation and less transparency than traditional investments
* Limited historical risk and return data
* Unique legal and tax considerations
* Higher fees, often including performance or incentive fees
* Concentrated portfolios
* Restrictions on redemptions (i.e. "lockups" and "gates")
CFA Institute is the world's premier association for investment professionals, and the governing body for the CFA(r) Program, CIPM(r) Program, CFA Institute ESG Investing Certificate, and Investment Foundations(r) Program. Those seeking a deeper understanding of the markets, mechanisms, and use of alternatives will value the level of expertise CFA Institute brings to the discussion, providing a clear, comprehensive resource for students and professionals alike. Whether used alone or in conjunction with the companion workbook, Alternative Investments offers a complete course in alternative investments and their role in investment management.
Preface
Acknowledgments
About the CFA Institute Investment Series
Chapter 1: Introduction to Corporate Governance and Other ESG Considerations
Learning Outcomes
* Introduction and Overview of Corporate Governance
* Stakeholder Groups
* Principal- Agent and Other Relationships in Corporate Governance
* Overview and Mechanisms of Stakeholder Management
* Mechanisms to Mitigate Associated Stakeholder Risks
* Company Boards and Committees
* Relevant Factors in Analyzing Corporate Governance and Stakeholder Management
* Risks and Benefits of Corporate Governance and Stakeholder Management
* Factors Relevant to Corporate Governance and Stakeholder Management Analysis
* ESG Considerations for Investors and Analysts
Summary
Chapter 2: Introduction to Alternative Investments
Learning Outcomes
* Introduction
* Investment Methods
* Investment and Compensation Structures
* Hedge Funds
* Private Capital
* Natural Resources
* Real Estate
* Infrastructure
* Issues in Performance Appraisal
* Calculating Fees and Returns
Summary
Chapter 3: Real Estate Investments
Learning Outcomes
Section A: Overview of Types of Real Estate Investment
* Introduction and Basic Forms of Real Estate Investment
* Economic Value Drivers, Role in Portfolio, and Risk/Return of Real Estate Investments Relative to Stocks and Bonds
* Considerations in Analysis and Due Diligence
* Indexes
Section B: Investments in Real Estate Through Private Vehicles
* Introduction to Valuation Approaches
* The Income Approach to Valuation: Discount Rates and the Direct
* The DCF Method, the Relationship between Discount Rate and Cap Rate, and the Terminal Capitalization Rate
* Private Market Real Estate Debt
Section C: Investments in Real Estate Through Publicly Traded Securities
* Types of Publicly Traded Real Estate Securities
* Valuation: Net Asset Value Approach
* Valuation: Relative Value (Price Multiple) Approach
* REIT Mini Case Study: Example of Disclosures and Valuation Analysis
* Private versus Public: A Comparison
Summary
General Characteristics of Real Estate
Private Equity Real Estate
Publicly Traded Real Estate Securities
Chapter 4: Private Equity Investments
Learning Outcomes
* Introduction
* Introduction to Valuation Techniques in Private Equity Transactions
* Contrasting Venture Capital and Buyout Investments
* LBO Model for Valuation of Buyout Transactions
* VC Method for Valuation of Venture Capital Transactions
* Exit Routes: Return Cash to Investors
* Risks and Costs of investing in Private Equity
* Private Equity Fund Structures and Terms
* Private Equity Fund
Summary
Chapter 5: Introduction to Commodities and Commodity Derivatives
Learning Outcomes
* Introduction
* Commodity Sectors
* Life Cycle of Commodities
* Valuation of Commodities
* Commodities Futures Markets: Participants
* Commodity Spot and Futures Pricing
* Theories of Futures Returns
* Components of Futures Returns
* Contango, Backwardation, and the Roll Return
* Commodity Swaps
* Commodity Indexes
Summary
Chapter 6: Hedge Fund Strategies
Learning Outcomes
* Introduction and Classification of Hedge
* Equity Strategies: Long/Short Equity
* Equity Strategies: Dedicated Short Selling and Short-Biased
* Equity Strategies: Equity Market Neutral
* Event- Driven Strategies: Merger Arbitrage
* Event- Driven Strategies: Distressed Securities
* Relative Value Strategies: Fixed Income Arbitrage
* Relative Value Strategies: Convertible Bond Arbitrage
* Opportunistic Strategies: Global Macro Strategies
* Opportunistic Strategies: Managed Futures
* Specialist Strategies
* Multi- Manager Strategies
* Analysis of Hedge Fund Strategies using a Conditional Factor Risk Model
* Evaluating Equity Hedge Fund Strategies: Application
* Evaluating Multi- manager Hedge Fund Strategies: Application
* Portfolio Contribution of Hedge Fund Strategies
Summary
Chapter 7: Capital Market Expectations: Forecasting Asset Class Returns
Learning Outcomes
* Introduction
* Overview of Tools and Approaches
* Forecasting Fixed Income Returns
* Risks in Emerging Market Bonds
* Forecasting Equity Returns
* Forecasting Real Estate Returns
* Forecasting Exchange Rates
* Forecasting Volatility
* Adjusting a Global Portfolio
Summary
Chapter 8: Asset Allocation to Alternative Investments
Learning Outcomes
* Introduction and The Role of Alternative Investments in a Multi-asset Portfolio
* Diversifying Equity Risk
* Traditional Approaches to Asset Classification
* Risk- Based Approaches to Asset Classification and Comparing Risk- Based and Traditional Approaches
* Risk Considerations, Return Expectations and Investment Vehicle
* Liquidity
* Fees and Expenses, Tax Considerations, and Other Considerations
* Suitability Considerations
* Asset Allocation Approaches and Statistical Properties and Challenges of Asset Returns
* Monte Carlo Simulation
* Portfolio Optimization
* Risk Factor- Based Optimization
* Liquidity Planning and Achieving and Maintaining the Strategic Asset Allocation
* Managing the Capital Calls and Preparing for the Unexpected
* Monitoring the Investment Program
Summary
Chapter 9: Integrated Cases in Risk Management: Institutional
Learning Outcomes
* Introduction
* Financial Risks Faced by Institutional Investors
* Environmental and Social Risks Faced by Institutional Investors
Glossary
About the Editors and Authors
Index