What is Alternative Investments? Flashcards
Define investments
Investment in deferred consumption
List four major types of real assets other than land and other types of real estate:
- Natural Resources
- Commodities
- Infrastructure
- Intellectual Property
List the three major types of alternative investments other than real assets in the CAIA curriculum:
- Hedge Funds
- Private Equity
- Structured Products
Name the five structures that differentiate traditional and alternative investments:
- Regulatory Structures
- Securities Structures
- Trading Securities
- Compensation Structures
- Institutional Structures
Which of the five structures that differentiate traditional and alternative investments relates to the taxation of an instrument?
Regulatory Structures
Name the four return characteristics that differentiate traditional and alternative investments:
- Diversification
- Illiquidity
- Inefficiency
- Nonnormality
Name four major methods of analysis that distinguish the analysis of alternative investments from the analysis of traditional investments:
- Return Computation
- Statistical
- Valuation
- Portfolio Management
Describe an incomplete market
Lack of investment opportunities that cause market participants to be unable to implement an investment strategy that satisfies their exact preferences such as risk preferences
Define active managment
Buying and selling securities in pursuit of superior combinations of risk and return
What distinguishes pure arbitrage from the more general usage of the term arbitrage?
- Pure arbitrage is risk free
- Risk free profits through the simultaneous purchase and sale of identical positions trading at different prices in different markets
- Arbitrage is not risk free
- Long and short positions are not identical or are not held over the same time period
Illiquidity
investment trades infrequently or with low volume
Absolute Return Products
Having little or no return correlation with traditional assets, and have investment performance of traditional investment.
Regulatory Structure
Role of government, including both regulation and taxation, in influencing the nature of an investment.
Securities Structure
Structuring of cash flows through leverage and securitization.
Securitization
Transforming asset ownership into a pro rata or pari passu basis.
Trading Structure
Role of an investment vehicle’s investment managers in developing and implementing trading strategies.
Compensation Structure
Organizational issues, especially compensation schemes, influence particular investments.
Institutional Structure
Financial markets and financial institutions related to a particular investment, such as whether the investment is publicly traded.
Information Asymmetries
Extent to which market participants possess different data and knowledge.
Incomplete markets
Markets with insufficient distinct investment opportunities.
Moral Hazard
Risk that the behavior of one or more parties will change after entering into a contract.
Absolute Return Standard
Means that returns are to be evaluated relative to zero, a fixed rate, or relative to the riskless rate, and therefore independently or performance in equity markets, debt markets, or any other markets.
Return Enhancer
Including an investment product in a portfolio
Return Diversifier
Relation in the portfolio’s risk that it is believed to offer through its lack of correlation with the portfolio’s other assets.
