Alternative Investment Strategies

Abstract

FALL 1999 O ften alternative investment strategies are lumped into two areas: managed futures and hedge funds. Investors have to be reminded that private equity, private debt, real estate, and credit derivatives all form part of the alternative to the long-only world of mutual fund stock and bond investments. In contrast to other books about the alternative investment firmament, this work directly provides insight into an array of alternative investment strategies. The book brings together chapters on private equity and private debt as well as what are commonly called skill-based investment strategies such as hedge funds, managed futures, and currencies, and provides detailed insight into developments affecting asset-backed securities, emerging market fixed-income debt, credit and insurance derivatives, and risk management within these strategies. More precisely, the book contains ten sections. In the introduction, the editor provides the wide range of questions surrounding alternative investments from an investor’s viewpoint. In the second section, on private equity and venture capital, two chapters represent the pertinent investment risks, liquidity, and regulatory issues. In the third section, the authors discuss skill-based strategies that include market-neutral investing, multimanager products, managed futures, commodities, and currencies. In the fourth section, three chapters address hedge fund performance as well as risk management issues. For instance, Chapter 12 provides a comparison of return patterns on traditional and alternative investments and concludes that hedge funds and CTAs have different trading styles and opportunities than the traditional stock and bond mutual fund managers. The fifth section on emerging markets addresses new techniques in emerging market fund management. In the sixth section, the authors introduce non-traditional types of asset-backed securities (ABS), which offer enhanced yield and well-managed, diversified risk, especially collateralized loan obligations (CLOs) and collateralized bond obligations (CBOs). The seventh section contains three chapters presenting issues on insurance and credit derivatives. Insurance-linked securities and contingent capital are now firmly established and are expected to grow over the next few years, although the current softness of the reinsurance market may limit the number of issues. In the eighth section, credit arbitrage and creditand insurance-linked notes are discussed, as well as a range of new asset structures. The ninth section discusses regulatory environment issues, including marketing alternative investment funds and taxation of hedge funds. The final section contains three appendixes including an executive summary of a 1997 report on alternative Book Review