Abstract
The search for yield in a risk-conscious world is open. We therefore emphasize in thisarticle on the necessity for investors facing liability constraints to address the riskand the return dimensions concomitantly. We introduce in this respect the Diversification-at-a-Reasonable Price approach, and investigate the benefits of a wideset of Alternative Investment Strategies. Against conventional wisdom, we find that“illiquid” (e.g., Private Equity, Infrastructure) and “alternative” (e.g., Hedge Funds)Alternative Investment Strategies do not necessarily dominate “traditional” ones (e.g.,Small Caps, High Yield). Very interestingly, the results obtained in our empirical analysissuggest that Institutional Investors could dramatically increase their exposure tocarefully selected Alternative Investment Strategies even with a very limited TrackingError budget. This is a very good omen for these Alternative Investment Strategies(e.g., CTAs, Merger Arb.).
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