What is an Alternative Investment? Flashcards
Why are structures of AI important?
Explain each type of structure
It is the structures of AI that make the characteristics of AI different from TI.(CRIST), Christ without H.
a) Regulatory: include govt. regulation and taxation;
b) Securities: include method of cash flow securitization, which creates tradable units tied to an asset
c) Trading: development and implementation of trading strategies by managers
d) Institutional: financial instiutions and markets that affect the ownership and trading of a particular investment;
e) Investment manager’s compensation
Wnat are the different types of PE investment?
- VC (Venture Capital),
- Leveraged Buyout (LBO),
- MD (Mezzanine Debt) and
- DD (Distressed Debt):
- VC: Equity used to finance start up companies;*
- LBO; Make a public company private through leverage financing;*
- MD includes privately held convertible debt;*
- DD involves the purchase of debt issued by companies in distress*
What is meant by efficiency?
All available information is incoporated into asset prices.
What is meant by benchmark?
What is meant by passive investing?
Benchmark is a standard against which a security’s performance can be compared. S&P 500 Index and DJIA are 2 commonly used bnechmarks.
Passive investing is investing in benchmark. It is the opposite of active investing.
Give another term for diversifier
What role does it play in AI?
Absolute return provider
It reduces risk without significantly modifying return expectations;
What is a financial asset?
DIRECT Claims on cashflows such as provided by a share of stock or bond.
What structural reasons cause non-normality in the case of AI?
- Trading structure: infrequent trading and active trading strategies;
- Securities structure: Derivatives and leveraging
What are the return and risk characteristic differences between AI and TI?
LEND
Alternative Investments are:
- illiquid
- inefficient
- Non normal return distribtions
- used for Diversification because of Low correlation with TI. They are absolute return products
a) Who are the major institutional investors who invest in Ai?
b) Why do they invest in AI?
a) Pension Funds, Foundations, Endowments and High net worth individuals;
b) Large institutional quality AI exhibit risks and returns characteristics that are acceptable to institutional quality investors
What is active management?
What is active risk?
What is active return?
What is information Ratio?
Why are they important to AI?
Active management is an attempt to create a better risk return combination by actively buying and selling securities.
Active risk is the additional risk taken to generate additional returns above the benchmark returns.
Active return is the return above the benchmark returns.
Information Ratio = Active Return/ Active Risk.
AI is all about active management systems
What are Hedge Funds?
- They are private investment vehicles which utilize the investment opportunities available because of the minimal regulatory restrictions on them.
- Through derivatives, leverage, short positions, and other strategies, they are able to avail returns not available to traditional investments.
- Hedge funds as a category can be further differentiated by their strategies.
- Private
- Derivatives, leverage, short positioning and other strategies
- Differentiated by straegies
What is Private Equity?
They are debt and equity securities that are not publicly traded. Debt investments in P/E behave just like equity just because of their high level of risk.
What are lumpy assets?
They are difficult to divide and can only be traded in certain quantities
Traditional Investments
These include long positions in cash, stock and bonds
What are Commodities?
Commodities are standardized goods delivered to market by large number of producers in large quantities.
They include physical commodity ownership, forwards or futures, securities of commodities producing firms, and Exchange Traded Funds (ETFs).
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