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CFA Level III > Alternative Investments > Flashcards

Flashcards in Alternative Investments Deck (14)
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1
Q

Alt Inv Role in PM

A
  1. exposure to risk/ return stocks and bonds cannot provide – real estate, long only commodities
  2. inc return b/c manager skill – hedge funds, managed funds
  3. combo – PE, distressed securities
2
Q

Alt Inv Characteristics

A
  1. illiquid
  2. diversification benefits
  3. due diligence costs
  4. difficult performance eval
3
Q

Traditional Alt Inv

A
  1. private equity
  2. commodities
  3. real estate
4
Q

Modern Alt Inv

A
  1. hedge funds
  2. managed funds
  3. distressed securities
5
Q

Special Issues for Clients Investing in Alt Inv

A
  1. taxes
  2. suitability
  3. communication
  4. decision risk
  5. concentrated positions
6
Q

Direct Real Estate Inv

A

residents, commercial real estate, land

+ leverage, tax deductible exp, control, geographical diversification

  • indivisible, high idiosyncratic risk, management costs, transaction costs
7
Q

Indirect Real Estate

A

REITS, infrastructure funds, CREFs, separately managed accounts

+ more liquid, less expensive, less risky

  • smoothed data (under estimate risk, overstate diversification benefit), correlated w/ stocks and bonds
8
Q

Buyout Funds

A

acquire firms w/ established cash flow to improve efficiency of firm; private equity

exit: dividend recapitalization, IPO, sale

9
Q

Venture Captial

A

investing in new firm, convertible preferred stock; compare to VC firms from other years; private equity

exit strategy: IPO, sale

10
Q

Private Equity

A

acquire firm with existing cash flows

+ high return, control

  • illiquid, uncertain time horizon, high risk, limited info, lack of maretability and control
11
Q

Hedge Funds

A

+ high reward

  • unregulated, high risk, high fees, managers can distort sharpe ratio, difficult to benchmark, illiquid (smoothing returns)

BIASES: relevance of past data, popularity bias, survivorship bias, stale price bias, backfill/ inclusion bias

12
Q

Downside Deviation

A

focus on neg returns, not penalize manager for high pos returns

13
Q

Commodities

A

direct (purchase commodities or derivatives) or indirect (inv in related firms); managed futures = commodity pool operation (systematic or discretionary)

+ diversification, inf hedge (storable and economy linked)

  • survivorship bias, relevance of past data, populatiry bias, stale price bias, backfill/ inclusion bias
14
Q

Distressed Securities

A

long only value investing, distressed debt arbitrage, private equity

+ high return, diversification

  • event risk, market liquidity risk, market risk, j factor (judge)