100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
  2.  
  3. RMIT University (RMIT )
  4.  
  5. CFA LEVEL 1

Summary

Summary CFA LEVEL 1 - ALTERNATIVE INVESTMENTS
 74 views  34 downloads
  • Course
  • CFA LEVEL 1
  • Institution
  • RMIT University (RMIT )
  • Book
  • CFA Program Curriculum 2018 Level I

I create this summary of knowledge related to CFA level 1 for my 2017 December exam. I got into the top 10% with this. Hope this can help you. (This does not guarantee for your pass, which requires dedication, hardwork and consistency. In case having trouble with any part, please refer to CFA note...

[Show more]

Preview 1 out of 4  pages

Document information

  • No
  • Alternative investments
  • October 26, 2018
  • 4
  • 2017/2018
  • Summary

Subjects

  • cfa level 1
  • cfa
  • alternative investments
  • alternatives
  • investment
  • cfa level 1 alternative investments

Connected book

book image

Book Title:

Author(s):

  • Edition:
  • ISBN:
  • Edition:

Written for

  • RMIT University (RMIT )
  • CFA LEVEL 1
All documents for this subject (7)

Seller

avatar-seller
Haastia_Grammistes.sexlineatus

Reviews received

Content preview

Concepts Description
Introduction to Alternative Investments
Alternative investments Investment in assets other than stocks, bonds and cash, including:
‐ Real estate
‐ Commodities
‐ Collectables
‐ Hedge fund (limited partnership)
‐ Private equity fund (limited partnership)
‐ Real estate investment trusts (REITs)
‐ Exchange Traded Funds (ETFs) that contain alternative investments

Differences between traditional Compared to traditional investments, alternative investments have:
investments and alternative ‐ Lower liquidity
investments ‐ Less regulations and disclosure
‐ Higher management fees
‐ More specialised management
‐ Potential diversification benefits
‐ More use of leverage and derivatives
‐ Potential higher return
‐ Limited and possible biased historical returns data
‐ Problematic historical risk measures
‐ Unique legal and tax consideration

Hedge funds ‐ Introduction Hedge funds are limited partnership of investors with adequate wealth, sufficient liquidity, and acceptable degree of investment sopistication
Return objectives can be statedd on an absolut basis (e.g.: 10%) or relative basis (e.g.: S&P 500 + 5%)
Hedge funds could employ different strategy, including:
‐ Take short equity positions
‐ Take long and short positions in derivatives
‐ Use leverage
Trade through prime brokers, who provide custodial services, administrative services, money lending, securities lending for short sales, and trading
Hedge funds are less liquid than traditional investments, with restrictions:
‐ Lockup period : period of withdrawal restriction after the initial investment
‐ Notice period : the amount of time a fund has after receiving a redemption request to fulfill that request
Management fee = % of committed capital
Incentive fee = % of profit
Fund of funds : an investment company that invests in multiple hedge funds → more diversifica on , allow smaller investors to access hedge funds. Fund of funds charge an addi onal
layer of fees beyond the fees charged by hedge funds

Hedge funds ‐ Strategies 1. Event driven strategies : based on corporate restructuring or acquisition that creates profit opportunities for long / short positions
‐ Merger arbitrage : Buy shares of firms being acquired , sell sort the firm making the acquisition
‐ Distress / Restructuring : Buy undervalued securities of firms in financial distress, when analysis indicates value will be increased by successful restructuring
‐ Activist shareholder : Buy sufficient equiy shares to influence a company's policy → increasing company value
‐ Special situations : Invest in firms that are issuing / repurchasing securities , spinning off divisions , selling assets , or distributing capital
2. Relative value strategies : Buying a security and selling short a related security → profit when perceived pricing discrepancy between 2 securi es is resolved
‐ Convertible arbitrage fixed income : Exploit pricing discrepancies between convertible bonds vs. common stock of the issuing companies
‐ Asset‐backed fixed income : Exploit pricing discrepancies between various mortgage‐backed securities / asset‐backed securities
‐ General fixed income ; Exploit pricing discrepancies between fixed income securities of various types
‐ Volatility : Exploit pricing discrepancies aring from differences between return volatility implied by options prices and manager expectations of future volatility
‐ Multi‐strategy : Exploit pricing discrepancies among securities in asset classes different from those listed above
3. Macro strategies : based on global economic trends and events → could involve long / short posi ons in equi es, fixed income, currencies or commodi es
4. Equity hedge fund strategies : profit from long/short positions in publicly traded equities and derivatives with equities as underlying assets
‐ Market neutral : Use techical / fundamental analysis to select undervalued equities for long / overvalued equities for short selling
‐ Fundamental growth : Use fundamntal analysis to find high‐growh companies
‐ Fundamntal value : Buy shares that are believed to be undervalued based on fundamental analysis
‐ Quantitative directional : Buy securities believed to be undervalued / Sell short securities believed to be overvalued based on technical analysis
‐ Short bias : Short position in overvalued equities

Hedge funds ‐ Benefits / Risks Benefits:
‐ Offer some diversification
Risks:
‐ In period of financial crisis, correlation of returns between global equities and hedge funds then to increase → limit hedge funds' effectiveness as a diversifying asset class
‐ Survivorship bias (excluded the performance of firms that no longer exist)
‐ Backfill bias (do not report performance at inception, but backfill performance later, when success track record is established)

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller Haastia_Grammistes.sexlineatus. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $0.00. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

15 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 15 years now

Start selling
Free  34x  sold
  • (0)
Download