Alternative Investment Portfolio

Types:

1. Real Estate
2. Private Equity
3. Commodities
4. Hedge Funds
5. Managed futures
6. Distressed Securities

Characteristics:

1. Low Liquidity (need liquidity premium)
2. Diversification (low correlation with stock and bonds)
3. Due Diligence Costs
4. Difficult to value
5. Less information

Also

1. Expose to asset classes that stocks and bonds cannot provide
2. Special investment strategies
3. Special asset classes + investment strategies

Due diligence checkpoints:

1. Market opportunities (any inefficiency to exploit?)
2. Investment process
3. Organization
4. People
5. Terms and structures (amounts and period)
6. Service providers (lawyers, brokers, ancillary staff)
7. Review documents

Issues for private health clients (with is not that significant in institutional investors):

1. Taxes
2. Suitability (e.g. time horizon)
3. Communication
4. Decision risk (ready to explain when clients wants to pull out emotionally)
5. Concentrated point (has large portion in a closely held company? Closely held means very few owners)