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Alternative Investments: Instruments, Performance, Benchmarks and Strategies

ISBN: 978-1-118-24112-7
638 pages
March 2013
Alternative Investments: Instruments, Performance, Benchmarks and Strategies (1118241126) cover image
A comprehensive guide to alternative investments that reveals today's latest research and strategies

Historically low interest rates and bear markets in world stock markets have generated intense interest in alternative investments. With returns in traditional investment vehicles relatively low, many professional investors view alternative investments as a means of meeting their return objectives. Alternative Investments: Instruments, Performance, Benchmarks, and Strategies, can put you in a better position to achieve this difficult goal.

Part of the Robert W. Kolb Series in Finance, Alternative Investments provides an in-depth discussion of the historic performance, benchmarks, and strategies of every major alternative investment market. With contributions from professionals and academics around the world, it offers valuable insights on the latest trends, research, and thinking in each major area. Empirical evidence about each type of alternative investment is featured, with research presented in a straightforward manner.

  • Examines a variety of major alternative asset classes, from real estate, private equity, and commodities to managed futures, hedge funds, and distressed securities
  • Provides detailed insights on the latest research and strategies, and offers a thorough explanation of historical performance, benchmarks, and other critical information
  • Blends knowledge from the conceptual world of scholars with the pragmatic view of practitioners in this field

Alternative investments provide a means of diversification, risk control, and return enhancement and, as such, are attractive to many professional investors. If you're looking for an effective way to hone your skills in this dynamic area of finance, look no further than this book.

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Acknowledgments ix

PART I Introduction 1

1 Alternative Investments: An Overview 3
H. Kent Baker and Greg Filbeck

2 The Role of Alternative Investments in Strategic Asset Allocation 19
Douglas Cumming, Lars Helge Haß, and Denis Schweizer

3 Trends in Alternative Investments 37
Erik Benrud

4 Alternative Investments and Due Diligence 53
Gökhan Afyonoğlu

PART II Real Estate 77

5 REITs and the Private Real Estate Market 79
Shaun A. Bond and Qingqing Chang

6 Commercial Real Estate 99
Peter Chinloy

7 Real Estate Investment Trusts 119
Brad Case

8 Mortgaged-Backed Securities 143
Eric J. Higgins

9 Mezzanine Debt and Preferred Equity in Real Estate 163
Andrew R. Berman

10 Real Estate Appraisal and Valuation 185
Jeffrey D. Fisher and Demetrios Louziotis, Jr.

11 Performance of Real Estate Portfolios 213
David Geltner

PART III Private Equity 239

12 Venture Capital 241
Tom Vanacker and Sophie Manigart

13 Mezzanine Capital 263
Sameer Jain and Phillip Myburgh

14 Buyout Funds 281
Christian Rauch and Mark Wahrenburg

15 Distressed Debt Investing 303
Michelle M. Harner, Paul E. Harner, Catherine M. Martin, and Aaron M. Singer

16 Performance of Private Equity 323
Christoph Kaserer and Rüdiger Stucke

17 Private Equity: Risk and Return Profile 345
Axel Buchner, Arif Khurshed, and Abdulkadir Mohamed

PART IV Commodities and Managed Futures 363

18 Investing in Commodities 365
Claudio Boido

19 Performance of Commodities 381
Andrew Clark

20 Commodity Futures and Strategic Asset Allocation 399
Yongyang Su, Marco C. K. Lau, and Frankie Chau

21 Managed Futures:Markets, Investment Characteristics, and Role in a Portfolio 419
Davide Accomazzo

22 An Overview of Managed Futures’ Performance: 1983 to Post-2008 Credit Crisis 437
Kai-Hong Tee

PART V Hedge Funds 453

23 Investing in Hedge Funds 455
Hunter M. Holzhauer

24 Performance of Hedge Funds 475
Dianna Preece

25 Hedge Funds and Risk Management 495
Theodore Syriopoulos

26 Hedge Funds and the Financial Crisis 521
Jing-Zhi Huang and Ying Wang

27 Hedge Funds: Replication and Nonlinearities 541
Mikhail Tupitsyn and Paul Lajbcygier

28 Fund-of-Funds: A Tale of Two Fees 567
Kartik Patel

Answers to Discussion Questions 587

Index 619

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H. KENT BAKER, PhD, CFA, CMA, is University Professor of Finance at the Kogod School of Business, American University in Washington, D.C. As one of the most prolific finance academics, he is the author or editor of 18 books, and more than 150 refereed articles in such publications as the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Financial Analysts Journal, Journal of Portfolio Management, and Harvard Business Review. He has consulting and training experience with more than 100 organizations. Professor Baker received a BSBA from Georgetown University; MEd, MBA, and DBA degrees from the University of Maryland; and an MA, MS, and two PhDs from American University. He also holds CFA and CMA designations.

GREG FILBECK holds the Samuel P. Black III Professor of Insurance and Risk Management at Penn State Erie, The Behrend School, and serves as Program Chair for Finance. He previously served as senior vice-president at Kaplan Schweser, and also held academic appointments at Miami University (Ohio) and the University of Toledo, where he served as the associate director of the Center for Family and Privately-Held Business. Professor Filbeck is a coauthor of Derivatives and Risk Management and editor of CFA Basics: The Schweser Study Guide to Getting Started. He has published more than 70 refereed academic journal articles that have appeared in the Financial Analysts Journal, Financial Review, and Journal of Business Finance and Accounting. Professor Filbeck serves on the editorial board of the Journal of Business and Economic Perspectives and as a board member for the Southern Finance Association.

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April 22, 2013
Alternative Investments: Instruments, Performance, Benchmarks and Strategies

Historically low interest rates coupled with severe equity bear markets around the world have generated intense interest in alternative investments. With returns in traditional investment vehicles relatively low, many sophisticated investors view alternative investments as a means of meeting their return objectives. Alternative Investments: Instruments, Performance, Benchmarks, and Strategies—part of the Robert W. Kolb Series in Finance—can put you in a better position to achieve this difficult goal.

Engaging and accessible, this reliable guide contains the latest insights about alternative investments based on contributions by practitioners and academics who are experts in this area. To reinforce the information covered, each self-contained chapter concludes with a summary and discussion questions of key lessons. Along the way, this book skillfully addresses essential topics associated with this field, including the market for alternative investments, benchmarks, and historical performance as well as specific investment strategies and issues concerning performance evaluation and reporting.

Divided into five comprehensive parts, this book provides extensive coverage of alternative investments ranging from real estate and private equity to commodities, managed futures, and hedge funds. Chapter by chapter, it will help you:

  • Determine the current market value of a particular alternative investment asset
  • Develop your investment knowledge base with regard to real estate investment trusts (REITs), commercial real estate, mortgage-backed securities (MBS), and mezzanine loans and preferred equity investments
  • Become familiar with the various investment activities and vehicles encompassing private equity, from distressed debt investing and buyout funds to venture and mezzanine capital
  • Understand commodities as a financial asset as well as how commodity investing via managed futures can improve portfolio construction
  • Discover the structure, history, performance, risks, and strategies of hedge funds, as well as a new nonlinear model of hedge fund returns that paves the way toward nonlinear replication

Alternative investing is a complex topic. Yet, by using this book as a guide, you will not only gain a broad understanding of the topic but also discover how to effectively apply alternative investments in real-world situations.

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