Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

628 Pages·2013·5.817 MB·English

ALTERNATIVE
INVESTMENTS
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ALTERNATIVE
INVESTMENTS
Instruments, Performance,
Benchmarks, and Strategies
Editors
H. Kent Baker
Greg Filbeck
TheRobertW.KolbSeriesinFinance
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LibraryofCongressCataloging-in-PublicationData:
Alternativeinvestments:instruments,performance,benchmarks,andstrategies/H.Kent
BakerandGregFilbeck,editors.
pagescm.–(TheRobertW.Kolbseries)
Includesindex.
ISBN978-1-118-24112-7(cloth);ISBN978-1-118-28518-3(ebk);ISBN978-1-118-28334-9
(ebk);ISBN978-1-118-28258-8(ebk)
1.Investments. 2.Assetallocation. 3.Investmentanalysis. I.Baker,H.Kent
(HaroldKent),1944- II.Filbeck,Greg.
HG4521.A482013
332.6–dc23
2012039746
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
Contents
Acknowledgments ix
PARTI Introduction 1
1 AlternativeInvestments:AnOverview 3
H.KentBakerandGregFilbeck
2 TheRoleofAlternativeInvestmentsinStrategic
AssetAllocation 19
DouglasCumming,LarsHelgeHaß,andDenisSchweizer
3 TrendsinAlternative Investments 37
ErikBenrud
4 AlternativeInvestmentsandDueDiligence 53
Go¨khanAfyonog˘lu
PARTII Real Estate 77
5 REITsandthePrivateRealEstateMarket 79
ShaunA.BondandQingqingChang
6 CommercialRealEstate 99
PeterChinloy
7 RealEstateInvestmentTrusts 119
BradCase
8 Mortgaged-BackedSecurities 143
EricJ.Higgins
9 MezzanineDebtandPreferredEquityinRealEstate 163
AndrewR.Berman
10 RealEstateAppraisalandValuation 185
JeffreyD.FisherandDemetriosLouziotis,Jr.
v
vi Contents
11 PerformanceofRealEstatePortfolios 213
DavidGeltner
PARTIII Private Equity 239
12 VentureCapital 241
TomVanackerandSophieManigart
13 MezzanineCapital 263
SameerJainandPhillipMyburgh
14 BuyoutFunds 281
ChristianRauchandMarkWahrenburg
15 DistressedDebtInvesting 303
MichelleM.Harner,PaulE.Harner,CatherineM.Martin,
andAaronM.Singer
16 PerformanceofPrivateEquity 323
ChristophKasererandRu¨digerStucke
17 PrivateEquity:RiskandReturnProfile 345
AxelBuchner,ArifKhurshed,andAbdulkadirMohamed
PARTIV Commodities and Managed Futures 363
18 InvestinginCommodities 365
ClaudioBoido
19 PerformanceofCommodities 381
AndrewClark
20 CommodityFuturesandStrategic AssetAllocation 399
YongyangSu,MarcoC.K.Lau,andFrankieChau
21 ManagedFutures:Markets,Investment
Characteristics,andRoleinaPortfolio 419
DavideAccomazzo
22 AnOverviewofManagedFutures’Performance:
1983toPost-2008CreditCrisis 437
Kai-HongTee
PARTV Hedge Funds 453
23 InvestinginHedgeFunds 455
HunterM.Holzhauer
CONTENTS vii
24 PerformanceofHedgeFunds 475
DiannaPreece
25 HedgeFundsandRiskManagement 495
TheodoreSyriopoulos
26 HedgeFundsandtheFinancialCrisis 521
Jing-ZhiHuangandYingWang
27 HedgeFunds:Replication andNonlinearities 541
MikhailTupitsynandPaulLajbcygier
28 Fund-of-Funds:ATaleofTwoFees 567
KartikPatel
AnswerstoDiscussionQuestions 587
Index 619
Acknowledgments
Bringing Alternative Investments: Instruments, Performance, Benchmarks, and
Strategies from the idea stage to publication involved many individuals.
Althoughwecannotthankeveryonewhoplayedaroleinthisprocess,we
wouldliketorecognizesomemajorplayers.Weappreciatethesupportprovided
by Bob Kolb and Kevin Commins in gaining approval of this book. The chapter
authors deserve special thanks for their excellent work. Our expert team at John
Wiley&Sonsexhibitedprofessionalisminbringingthemanuscripttofinalform,
especially Claire New, the production editor. The Kogod School of Business at
American University and Penn State Behrend provided financial support. Linda
Bakerdeservesspecialthanksforhercarefulreviewofpartsofthemanuscriptas
wellasforherpatienceandencouragement.Janis,Aaron,Kyle,andGrantFilbeck
deservespecialthanksfortheirsupportandencouragement.Theauthorsdedicate
thisbooktoLindaBakerandJanisFilbeck.
ix
Alternative Investments: Instruments, Performance, Benchmarks, and Strategies. Edited by H. Kent Baker and Greg Filbeck.
© 2013 John Wiley & Sons, Inc. Published 2013 John Wiley & Sons, Inc.
PART I
Introduction
CHAPTER1
Alternative Investments:
An Overview
H.KENTBAKER
UniversityProfessorofFinance,KogodSchoolofBusiness,AmericanUniversity
GREGFILBECK
SamuelP.BlackIIIProfessorofInsuranceandRiskManagement,TheBehrend
College,PennStateErie
INTRODUCTION
Givenhistoricallylowinterestratescoupledwithsevereequitybearmarkets,inter-
estinalternativeinvestmentshasrecentlysoared.Becausesophisticatedinvestors
viewed the resulting investment environment for traditional investments as low
return, many turned to alternative investments as a way of meeting their return
objectives and, perhaps to a lesser extent, as a means of controlling risk. That is,
alternative investments provide an opportunity to earn a reasonable return with
manageable risk. Some alternative investments offer good opportunities to par-
ticipate in different markets and to apply investment strategies that are unavail-
abletothegeneralinvestingpublic.Thus,investorsandportfoliomanagerswho
understandalternativeinvestmentshaveasubstantialadvantageoverthosewho
donot.Chen,Baierl,andKaplan(2002),AminandKat(2003),Chen,Ho,Lu,and
Wu(2005),andAnson(2006)findsuperiorperformancefortheinclusionofalter-
nativeinvestmentsonastand-alonebasisorasapartofaportfolioconsistingof
traditionalassets.
What are so-called “alternative investments”? Alternative investments refer to
many asset classes that fall outside of traditional investments, such as stocks,
bonds,andcash.Broadlyspeaking,anythingelseinwhichanindividualorinstitu-
tioncaninvestmaybecalledanalternativeinvestment.Becausealternativeinvest-
mentsencompassawiderangeofofferings,limitingthediscussionofthevarious
typestoafewmajorcategoriesishelpful.Yau,Schneeweis,Robinson,andWeiss
(2007)placesuchinvestmentsintotwobroadcategories:
1. Traditionalalternativeinvestments
(cid:2)
Real estate: Ownership interests in land or structures attached to land.
Investorsmayparticipateinrealestatedirectlyorindirectly.Directown-
ership involves investment in residences, commercial real estate, and
3