Reading 50

Question 1

Characteristics of alternative investment

Answer 1

1. illiquidity of underlying investments
2. Narrow manager specialization
3. Low correlation with traditional investments
4. Low level of regulation and less transparency
5. Difficulty in determining current market values
6. Limited and potentially problematic historical risk and
   return data
7. Longer time horizon
8. Higher fees
9. Unique legal and tax considerations
10. Involves active management and extensive
    investment analysis
11. Trade in less efficient markets and tend to be less
    efficiently priced than traditional marketable
    securities
12. Use high leverage compared to traditional
    investments

Question 2

Alternative investment include

Answer 2

Alternative assets

Alternative strategies

Question 3

Example of alternative assets are

Answer 3

Real estate and commodities

Question 4

Example of alternative strategies

Answer 4

Private equity funds
Hedge funds
Exchange traded funds (ETF)

Question 5

What does the alternative strategies fund can do

Answer 5

Use derivatives and leverage
Invest in illiquid assets
Take short positions

Question 6

Alternative strategies funds tend to have what?

Answer 6

• High fees
• Low diversification of managers and investment
• high leverage
• restrictions on redemptions

Question 7

What are the 3 argument for investing in alternative investment

Answer 7

• Provide diversification benefits, b/c
  low correlation with traditional assets.
• Enhance risk-return profiles, b/c provide positive absolute return.
• Provide hedge against inflation

Question 8

What kind of investors of alternative investment

Answer 8

• Institutional investors: endowments, pension funds, foundations, sovereign wealth funds
• High net worth individuals