Alternative Investments Flashcards
1
Q
Alternative investments often have higher management fees on average with an incentive structure built in
A
Compared to traditional investments, these investments are:
- Less liquid
- less regulated and less transparent
2
Q
Six types of alternative investments
A
- Hedge Funds
- Private Equity Funds
- Real Estate Investment Trusts
- Commodities
- Infrastructure
- Other tangible assets – wine, stamps, art.
3
Q
Four main hedge fund strategies
A
- Event-driven – typically restructuring or acquisition
- Relative Value – buying a security and selling short because of the price discrepancy
- Macrostrategies – global economic trends and events that involve long/short positions
- Equity HFs – seek to profit from long or short positions in publicly traded equities
4
Q
3 Stages of Venture Capital FIrms Investments
A
- Formative – invest during firm’s earliest stage
a. Angel Investors – business plan and mkt research
b. Seed Stage – product development, mkting
c. Early Stage – initial commercial production - Later Stage - Company already has production and sales. These investments are for expansion.
- Mezzanine – capital provided to prepare firm for IPO
5
Q
Brownfield Investment vs. greenfield
A
Brown – Already constructured
Green – to be constructed
6
Q
hurdle rate
A
fees paid if rate hits X%
7
Q
high water mark
A
incentive fee is not paid on gains that just offset prior losses
8
Q
“1 and 10”
A
1 % mgmt fee +10% of profits (incentive fee)
9
Q
Contango= little or no convenience yield, so future prices > spot prices
A
backwardation = convenience yield is high, so the futures price < spot prices
10
Q
Due Diligence for AI
A
- Organization – experience and quality
- Portfolio Management
- Operations and Controls – Reporting and Accting Methods
- Risk Management – Funds policies and limits
- Legal Review
- Fund Terms – Fees and Incentives
