Alternative Investment Groups
Alternative
Investment Groups
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Direct: you own the
asset
Indirect: you own a
share
Real
Estate:
- Direct: owns lands etc (more diversified)
- Indirect:
- Companies develop/manage real estate
- Real Estate Investment Trust REIT – public
traded shares in real estate portfolio (less diversified, higher
correlation to the market)
- Commingled Real Estate Fund CREF – pooled
investment privately held
- Infrastructure Funds – provide investment in
public projects like schools
- Accounts manage CREF
Large idiosyncratic
risk (non-systematic)– the risk of price changed due
to the unique circumstance of the asset instead of the whole market
Private
Equity:
Startup,
middle-market (closed to IPO) (VC)
Private-investment-in-public-entity (PIPE)
(Buyout funds)
PIPE – purchasing a
public company or an established private company
- Direct: e.g. owning preferred shares
- Indirect: owning shares of VC or buyout funds
Commodities:
- Direct: commodities or the futures: more
exposure, may have carrying loss
- Indirect: Companies have business in
commodities, may be less exposure because of hedging by the companies
Most liquid,
positive correlation to inflation
More investable
indices can be useful for small investors
Hedge
Funds:
Constructed
deliberately to be less transparent (by structuring to avoid regulations) and
use non-standard technologies
Managed
Futures:
Like Hedge funds,
but focus more in derivatives and index
Usually Limited
Partnership:
The partner:
Commodity Pooled Operator (CPO)
Managers: Commodity
Trading Advisors (CTA)
Both needs
registration => more regulated than hedge funds
Has public and private
Risk Characteristics
vary a lot. Low correlation to stocks and bonds. Sigma
smaller than stocks but higher than bonds
Distressed
Securities:
Can be hedged fund
class (more liquid) or private equity class (less liquid)
Infrastructure
funds:
Low risk (also low
return), long term, stable cash flow
Buyout
funds:
Middle-market buyout
funds – to buy private companies or division of public companies
Mega-cap buyout
funds – to buy publicly traded companies
Returns:
- Selling in private placement or IPO
- Dividend recapitalization – restructure the
equity to debts to the funds to receive dividends. Ownership does not
change