Alternative assets : investments for a post-crisis world

250 Pages·2011·1.32 MB·English

by  Fraser-Sampson

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Alternative Assets
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Alternative Assets
Investments for a
Post-Crisis World
Guy Fraser-Sampson
A John Wiley & Sons, Ltd., Publication
This edition fi rst published 2011
© 2011 John Wiley & Sons, Ltd
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ISBN 978-0-470-66137-6 (hardback), ISBN 978-0-470-97688-3 (ebk),
ISBN 978-0-470-98008-8 (ebk), ISBN 978-0-470-98009-5 (ebk)
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Contents
Preface xi
Acknowledgements xv
1. What are Alternative Assets? 1
Illiquid 2
Unquoted 2
Non bonds or equities 3
Are alternative assets really “alternative”? 3
Thoughts on classifi cation 6
Private assets 6
Commodity type assets 9
Volatility and valuation issues 10
Time horizons 12
Global Tactical Asset Allocation (GTAA) 13
An alternative way of accessing conventional assets? 15
What we will be considering 16
Summary 17
2. Investing in Alternative Assets 19
Why should we invest in alternative assets? 19
The traditional worldview 20
Risk (volatility) 20
Liquidity 22
Problems posed by the traditional world view so far as
alternative assets are concerned 23
The tail wags the dog 23
The parallel universe of pension funds 24
Volatility as risk 25
vi Contents
Liquidity 27
How much liquidity do you really need? 28
The illiquidity premium 29
Problems with liquidity 30
The stock market goes supernova 31
Liquidity and volatility 31
Liquidity and correlation 32
Extending the effi cient frontier 33
Correlation 35
Active and passive investing – beta and alpha 37
The rationale for alternative assets 40
Summary 41
3. Real estate 43
Real estate beta 45
Real estate exposure 46
Direct 47
Quoted 48
Quoted (1): property companies 48
Quoted (2): REITS 49
Quoted (3): ETFs 50
Unquoted (1): unlisted property funds 50
Unquoted (2): private real estate 53
Synthetic 57
Summary 61
4. Energy 63
Spot trading 64
Infl uences on pricing 65
Untapped reserves 65
The (US) strategic petroleum reserve 65
Production and growth in oil hungry economies 65
Weather 66
Political factors 66
Terrorism 67
The US dollar 67
Accessing oil as an investment 69
Investing in the shares of oil companies 69
Synthetic exposure 71
Oil ETFs 73
Bio-fuels 75
Natural gas 77
Oil and gas royalties 79
Contents vii
Energy as an investment 82
Summary 83
5. Private Equity 85
Private equity – defi nition and types 85
Buyout 86
Drivers 87
History and development 88
Development capital 89
Characteristics 89
Minority shareholder protection 90
Deal types 91
Growth capital 91
Venture capital 92
Venture returns and home runs 94
Mezzanine 95
Quoted private equity 95
Private equity funds 97
Private equity returns 99
The J-Curve, IRRS and multiples 100
Vintage year returns 102
Funds, funds of funds and secondaries 102
Concluding thoughts on private equity 103
Summary 105
6. Hedge Funds 107
Introduction 107
Use of derivative instruments 108
Leverage 110
Some common elements 112
Legal structure 112
Type of trades 113
Lack of transparency 113
How hedge funds invest – an overview 114
Long and long/short 114
Credit based 116
Global macro 117
Specifi c strategies 117
Long only 118
Long/short 118
(Equity) market neutral 118
Convertible arbitrage 118
Statistical arbitrage (“stat arb”) 119
viii Contents
Merger arbitrage 120
Fixed income arbitrage 120
Global macro 121
Event driven 121
Distressed 121
Fund of funds 122
The hedge fund model – pros, cons and the future 123
Redemption/co-investor risk 125
Some fi nal thoughts on hedge funds 126
Summary 127
7. Infrastructure 129
What is infrastructure? 131
Secondary and primary infrastructure 132
Regulated and demand-driven 133
Drivers 133
Government 134
Investors 134
Industry 134
Threats 135
Regulatory/governmental 135
Funding 137
War and terrorism 137
Quoted and unquoted infrastructure 138
Quoted infrastructure (1): industrial companies 138
Quoted infrastructure (2): listed investment vehicles 140
Unquoted infrastructure (1): projects (typically
PFI or PPP type) 143
Unquoted infrastructure (2): funds 144
Returns 145
Summary 146
8. Commodities 147
What are “commodities”? 148
How can we classify commodities? 149
Soft commodities 149
Hard commodities 150
What are the return drivers? 151
Commodities beta 152
Prices and indices 152
Is it investable? 153
US dollar currency risk 155
Are they representative? 156