Alternative Investment Vehicles Research Articles

Evaluating the Efficiency of Alternative Investment Vehicles in Modern Portfolio

Abstract: The evolving global economic landscape has prompted investors to diversify their portfolios beyond traditional stocks and bonds, leading to the increasing prominence of alternative investments. This study examines the role and effectiveness of alternative investment options, such as private equity, hedge funds, real estate, and commodities, in modern investment portfolios. These non-traditional assets offer unique opportunities for risk management, diversification, and potential growth, making them appealing choices for investors seeking to enhance their portfolio's performance and stability. The research highlights the key factors driving the growing appeal of alternative investments, including their ability to provide diversification benefits by spreading risk across a range of assets with low correlation to traditional market indices. Additionally, these investments present opportunities for increased returns, particularly in low-interest rate environments, and enable investors to access emerging markets and industries, broadening their investment horizons

COMPARATIVE ANALYSIS OF SHARIA AND CONVENTIONAL STOCKS PORTFOLIO PERFORMANCE USING SHARPE, TREYNOR AND JANSEN METHODS

The Sharia capital market emerged as an alternative vehicle for the investor community to invest in the financial world in accordance with Sharia principles. As an alternative investment vehicle, the Sharia capital market is of course also targeted by investors who care about Sharia in addition to the general objective as a vehicle used to a profitable investing. Based on this basic framework, this research was conducted with the aim of analyzing and comparing stock performance in the form of stock portfolios between Sharia-based and conventional one. The JII70 stock index was used as an object for the Sharia stock portfolio, while the conventional stock portfolio was represented by the LQ45 index. The performance assessment used on these two portfolios was a portfolio performance assessment using the Sharpe, Treynor, and Jensen methods during the Covid-19 pandemic. The performance of these stock portfolios according to the three methods showed positive results. The performance of the JII70 stock portfolio was lower than the LQ45 index although it is insignificant. Meanwhile, according to the Treynor index, the performance of the JII70 was better than the LQ45 although it is insignificant.

Using Alternative Investment Vehicles to Replication Hedge Funds Risk and Return

In this paper we will compare the risk return pattern along with the performance measure of hedge funds to alternative investment vehicles, namely the Exchange Traded Funds (ETFs). Our results showed that exchange traded funds can be used to emulate the hedged funds portfolios’ risk and return matrix, and performance. Exchange traded funds are required to report their investment strategies to the Security and Exchange Commission. Hedged funds have proprietary investment strategies and do not have to report their investment strategies to the Security and Exchange Commission.

Bond Market Development in Bangladesh: Prospects, Challenges and Required Actions

Purpose – The purpose of this study is to focus on the present scenario of the bond market in Bangladesh and to explore prospects, challenges, and required actions to expand the market to support the growing economy and make it compatible globally. Design/methodology/approach – The qualitative research method is used for collecting and analyzing secondary data from different journals, news articles, working papers, conference papers, regulatory reports, etc. to focus on the existing bond market of Bangladesh and to find out challenges and scope for further development while recommending required actions through narrative inquiry. Findings – The bond market in this country is in a very niche phase compared to the global bond market as well as the Asian bond market, though the economy is booming. The bond market of our country is dominated by government debt securities rather than corporate debt securities. As of 2021, Bangladesh's bond market size stands at $18 billion compared to the global bond market size of $124 trillion. And compared to some East Asian and South Asian countries, the bond market size of Bangladesh is very low through percentage analysis of GDP. Study limitations – Only secondary data is evaluated and scrutinized for this study. Practical implications – For Bangladesh, the creation of the debt market is essential to build an efficient and compatible capital market. Other than the equity market, various financing vehicles need to be created and different financing modes need to be opened by the government or any other public and private concern for the development of mega infrastructural projects. Nowadays, to minimize the budget shortfall to undertake such mega projects, borrowing from the banking sector becomes essential. On the other hand, this market would also create an opportunity for investors as an alternative investment vehicle. Originality/value – This study focused on the current bond market scenario in Bangladesh and showed a comparative analysis of the bond market portfolio of our country with developed countries and other developing countries. The prospects and challenges of expanding the existing bond market and required future actions to build an effective bond market in Bangladesh are also recommended in this study.

Asset Allocation Implications of Illiquid Assets

In the wake of the global financial crisis, with low returns on traditional fixed income instruments, institutional investors seek alternative investment vehicles with similar characteristics. Illiquid assets, such as infrastructure and real estate, have become an increasingly important share of their investments. In this article, we study the performance impact in terms of diversification and return of introducing illiquid assets in an otherwise standard allocation.

Investing outside the box: Evidence from alternative vehicles in private equity

Using previously unexplored custodial data, we examine alternative investment vehicles (AVs) in private equity (PE) funds over the last four decades. By 2017, AVs reached 40% of all PE commitments. Average AV performance matches the PE market, but underperforms the main funds of the partnerships sponsoring the AVs. Limited partners (LPs) with better past performance invest in AVs with better average performance, even after conditioning on the general partners’ (GPs’) past records. This result is largely driven by preferential access of top LPs to top AVs. Returns in PE increasingly depend on the match between GPs and LPs and both parties’ outside options.

Special Purpose Acquisition Companies (SPACs): The Private Sector's Solution to Government Overreach

This research was designed to examine the growth in popularity of Special Purpose Acquisition Companies, particularly the U.S. Federal Government’s responsibility for such growth and their concerns and proposed solutions. I will attempt to answer the following questions: (1) What characteristics of SPACs or the market operating environment led to the explosion in SPAC transactions, (2) What was the U.S. Government’s role in igniting SPAC growth, (3) What concerns the U.S. Government has communicated regarding SPACs, (4) What solutions is the U.S. Government proposing to address their concerns, and finally, (5) My analysis of the aforementioned questions. I rely on qualitative research methods to support my argument. Additionally, I incorporated quantitative data from SpacInsider.com to buttress my arguments. Future research papers will require primary research as well as multivariable regression analyses to better understand which factors are pushing SPAC growth, and which policy options have the desired impact of reducing the use of SPACs for going public and increasing the use of traditional IPOs. My qualitative research uncovered an outsized role played by the U.S. Government in the growth and popularity of SPACs. Additionally, precedent research demonstrated that the U.S. Federal Government’s proposed solution of additional regulations will not work and will, instead, create a new alternative investment vehicle in the same fashion that overregulation of IPOs led to SPACs. To solve the concerns regulators have voiced, officials charged with developing and altering the IPO regulatory framework must loosen the grip of listing-crushing regulations. If smaller businesses were able to access the markets via an IPO, they would do so because there is more certainty in the legal grounding of an IPO, and the process is an established one familiar to the business world. Any actions, on the government’s part, to tighten already strangling regulations will lead to more of the same.

Can Expense Ratios Signal Performance? An Analysis of Equity ETFs & Mutual Funds

This study examines the impact of the emergence of exchange-traded funds (ETFs) as an alternative investment vehicle to mutual funds. As the number of ETFs continues to rise, we investigate potential risks and disadvantages posed by ETFs in comparison to traditional mutual funds. ­We compare the returns, performance, and expense ratios of ETFs to those of mutual funds. We find that expense ratios are positively correlated with actively managed mutual fund returns and that passive funds have outperformed active funds since their inception. There is downward pressure on mutual fund fees over time, suggesting increased competition between mutual funds and ETFs. We also find, up to a certain threshold, actively managed funds are worth their costs. KEYWORDS: Exchange-Traded Fund (ETF); Mutual Fund; Investing; Fee Structure; Expense Ratio; Passive (Active) Investing; Portfolio Management; Indexing

Investing Outside the Box: Evidence from Alternative Vehicles in Private Capital

This paper undertakes a comprehensive analysis of alternative investment vehicles in private equity, using unexplored custodial data about 112 limited partners over four decades. We differentiate between alternative vehicles that are GP-directed versus those where the LP has some discretion. Of the roughly 5500 distinct investments made by the LPs in our sample, 32% of investments (17% of capital commitments) were in such alternative vehicles; the allocation increased by more than 10 percentage points over the last decade. Alternative vehicles were far more likely to be offered by larger and North America-based buyout funds. The average performance of these alternative vehicles lagged that of the GPs’ corresponding main funds. The best LP performance was among endowments, private pensions, and insurers. Finally, LPs with better past performance invested in alternative vehicles with better performance, even after conditioning on the GPs’ past records. This result suggests that bargaining between GPs and LPs leads to gradation in investment performance based on the parties’ outside options.

Fractional ownership – an alternative residential property investment vehicle

PurposeThe purpose of this paper is to determine the profile of the typical online fractional residential property investor in Australia. This study also seeks to understand the motives for engaging with and investing in alternative residential property investments.Design/methodology/approachThis study employs a survey-based design via an online questionnaire to gather information on investor age, gender, type, education levels, time horizons and investment history and risk and return expectations. It also gathers information regarding investors’ financial literacy including tax implications of fractional property investment.FindingsThe findings of this study suggest amongst others, that fractional property investors tend to be younger, although the platform also attracts older investors including older females. The study also found that investors do not select alternative investment platforms in anticipation of super-normal investment returns. Return expectations are realistic and are based on a balance between capital growth and income.Practical implicationsThis study indicates that alternative investment platforms lowers the barriers of entry into residential property for first time investors. It therefore creates opportunities to allow many first time individual investors to invest in property, often as an alternative to bank savings or investing in the stock market.Originality/valueThis study enhances our understanding of the influence of alternative investment platforms on investment decision-making. More specifically, it contrasts fractional property investment with more traditional investment opportunities to understand the motives of investors for diversifying into online investment vehicles.

Testing Multi Bubbles for Commodity Derivative Markets: A Study on MCX

Due to their volatility differences, yield differences and low correlations with equity markets, metal futures are held for diversification in the international investors’ portfolios. Beginning with dot.com bubble and following global crisis, the mutual movement of equity markets caused investors to canalize alternative investment vehicles. The study aims to investigate if there are bubbles in metal futures in The Multi Commodity Exchange of India Limited (MCX) related the period beginning from January 2010 to August 2017 for copper, lead, nickel and zinc; and March 2010 to August 2017 for aluminum in a weekly data range. Using Sup Augmented Dickey Fuller (SADF) and Generalized Sup Augmented Dickey Fuller (GSADF) tests, no evidence on bubble could be found in any metal market in the used MCX sample. The precious metal markets are out of the sample because of their relatively high volatility.

Investor perspectives on property crowdfunding: evidence from Australia

PurposeThe purpose of this study is to investigate the perceptions of property investors of the risks and returns associated with property crowdfunding as an investment vehicle. The study contributes to the understanding of alternative property investment vehicles and how it is perceived by investors.Design/methodology/approachThe study focusses on investor perceptions in using property crowdfunding as an investment vehicle and follows a survey-based design. A questionnaire was finalised after the completion of a pilot study and was distributed to existing property crowdfunding investors via email. Inferential statistical measures were used.FindingsThe results show, to an extent, similarities to general equity-based crowdfunding studies. However, the uniqueness of property crowdfunding as an investment vehicle may explain the insignificance of the results when related to other studies. Overall, the property crowdfunding investor seems to present cautious behaviour with a conservative perception of property crowdfunding as an investment vehicle.Practical implicationsIt is recommended that property crowdfunding platforms present prospective investors with more formal regulation of the property crowdfunding industry. Such a regulatory framework may lessen the current level of uncertainty presented by investors.Originality/valueThe study enhances the understanding of the role of property crowdfunding as an alternative investment vehicle in Australia. More importantly, it went some way towards enhancing the understanding of how investors perceive and behave vis-à-vis property crowdfunding as an investment vehicle.

Can Simple Asset Allocation Strategies Outperform the Ivy League Endowments?

During the last 30 years, the compound annual returns of the endowments of the Ivy League and other comparable educational institutions have received worldwide attention for exceptional performance over an extended period of time. The transition from a pure asset allocation strategy in public markets to one with a large allocation to alternative assets is often cited as the primary reason for the superior investment performance. An alternative explanation is that the superior performance is due to a riskier portfolio allocation through the use of alternative investments. This can take the form of a higher equity allocation, an equity allocation to riskier securities, or the increased use of portfolio leverage through these alternative investment vehicles. Studies have analyzed whether these alternative investments have added significant value to endowment performance that could not have been created with the addition of risk using these factors applied to a conventional public asset allocation. We examine the investing success of the endowments of Ivy League universities and other comparable institutions and compare them to several simple asset allocation strategies in the public markets. We want to determine if these alternative investments offer additional value that could not be created by increasing the level of risk in these public portfolios, possibly through the use of leverage. <b>TOPICS:</b>Foundations &amp; endowments, real assets/alternative investments/private equity, risk management, performance measurement

Artwork securitisation: a Chinese style of artwork investment

A new artwork trading model emerged in China at the beginning of 2010s: the value of a piece of artwork was divided into equal shares, and investors could buy and sell these shares in the cultural artwork exchanges, in exactly the same way as investors trading stocks in the stock market. In China, this trading model, once available, was hotly pursued by investors. This rapid market growth quickly descended into trading market confusion and speculation, forcing the government to deal with this model and eventually putting a stop to it. In this paper, we take a closer look at the reasons for the artwork shares’ price booming and slumping, the disorder and speculation in the artwork share trading market, and the reasons why the Chinese government halted this kind of trade. Taking the Tianjin Cultural Artwork Exchange of China as an example, we found that artwork can be an alternative investment vehicle, but the share trading model, similar in function to the stocks and bonds market, is not fit for artwork. The lack of legal basis and supervision by governmental bodies, together with the changeable trading rules has also contributed to the failure of this artwork trading model in China.

Bitcoin as an alternative investment vehicle

This paper documents time series momentum in Bitcoin returns. The paper finds persistence in returns for one to 8 weeks that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction. The time series momentum in Bitcoin returns is similar to that of the other asset returns while the time span is much shorter. This may be due to much quicker nature and shorter term memory of Bitcoin investors. A combined portfolio of S&P500 and Bitcoin momentum strategy shows enhanced expected return, skewness, kurtosis and Value at Risk for given levels of portfolio return volatility.

The High Levels of Excess Reserves 2008-2012: An Investigation into the Determinants of the U.S. Banks' Liquidity Hoarding during the Global Financial Crisis

Excess reserves, the indication of a bank's opportunity to invest, have historically been quite predictable and low for many years. From early sixties to August of 2008, the percentage of excess reserves in relation to required reserves has been between 1% to 9%. In September 2008, shortly prior to the tipping point of the 2008 financial crisis, the level of excess reserves began to rise dramatically and has stayed quite high even four years later. The watershed moment of Lehman Brothers and AIG failing precipitated a banking panic that involved drastic policy changes by the Fed and financial firms scrambling to find liquidity in anticipation of a credit crunch and drawdowns of credit lines. In less than six months, excess reserves ballooned to over $900 billion, which accounts to 2,063% of required reserves. Surprisingly, the large amount of excess reserves did not return to the previous levels. Instead, it has increased even more to nearly $2 trillion. This paper thus investigates the determinants for banks to hoard liquidity. The data reveals that high losses in loans and investments have caused banks to prognosticate higher levels of precautionary reserves. Furthermore, the very low federal funds rate and high unemployment rate have given banks limited opportunities to use the reserves in other alternative investment vehicles. Finally, the Federal Reserve's decision to pay interest on excess reserves provided incentives for banks and made holding reserves above the required amount no longer a cost for the bank.

The Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth

In the past decade, we have witnessed rapid growth in a variety of specialist alternative investment vehicles including venture capital, crowd funding, business angel funds, later-stage private equity, hedge funds, sovereign wealth funds, infrastructure funds, and real-estate funds. The importance of venture capital and angel investment for new firms, especially in high-growth, high-technology sectors, is well known. However, alternative investments span a wide range of company types, from small, early-stage ventures with high-growth rates but little cash flow to large firms inmature industries that generate substantial cash flow. Alternative investment vehicles introduce new forms of financing with different objectives and diverse forms of involvement by investors in portfolio firms. Alternative investors differ widely in skills, goals, experience, and investment time horizons. They often invest across a variety of institutional environments, transferring standard investment approaches from one sector or country to another. Because these alternative equity stakes are generally less liquid than shares in publicly traded enterprises, their growth raises a host of important issues for the organization and governance of portfolio companies, for the structure of industries heavily dependent on alternative investment pools, and for

Private Infrastructure Finance and Investment in Europe

This study discusses the structure and development of private infrastructure finance in Europe in a global context. It examines the contribution of private capital to the financing of infrastructure investment needs. A ‘big picture’ is created by putting the various financing instruments and investment vehicles into a simple frame, i.e. percentages of GDP.There is scope for the development of alternative financing arrangements (such as public-private partnerships) and investment vehicles (such as project bonds and suitable investment funds). However, the traditional ways of corporate (and public) capital expenditure as well bank lending, need to keep working in Europe. Institutional investors can play a bigger role as a source of finance but expectations should be realistic. There are a number of barriers in place, regulatory and otherwise, that need to be worked on.

Modelling and Replicating Hedge Fund Returns

This paper provides discussion on factor-based modelling for hedge fund returns, and demonstrates replication via both rolling windows and Kalman filters. In particular, we focus on estimating time-varying hedge fund returns exposure through various asset-based style (ABS) factors. It is shown that certain hedge fund strategies are more susceptible to cloning, suggesting a higher likelihood of creating transparent liquid replication products as either an alternative investment vehicle or as a benchmarking / style analysis tool for institutional investors.

A Primer On Subscription (Capital Call)Loan Facilities

There has been a sustained resurgence of subscription loan or capital call lending facilities to private equity funds. Typically, the loans to a private equity fund are secured by a pledge by the fund (and, if applicable, the fund’s general partner) of the unfunded capital commitments of the fund’s investors and the rights and remedies of the fund in respect thereof. Because the collateral securing these loan facilities arises from the constituent documents of the fund, as well as the subscription agreements executed by the fund’s investors, the establishment and structuring of a subscription loan facility requires a comprehensive legal due diligence review of the related fund’s underlying documents, including its constituent documents, investment management agreement, offering materials, subscription agreements, and any relevant investor-side letters. It is essential that these documents explicitly permit borrowing facilities and the ability to pledge the unfunded capital commitments of the fund’s investors and the other collateral and expressly provide that the investors commit to fund capital calls. There are also less obvious, but no less important, fund document provisions that can significantly impact a lender’s rights and remedies, including provisions relating to alternative investment vehicles, the right of an investor to be excused from funding a capital call under certain circumstances, the ability of the fund to reduce unfunded capital commitments of investors by deeming the payment of certain expenditures to be capital contributions by the investors, and restrictions set forth in side letters with fund investors. Certain of the issues raised by the terms of the constituent documents for a fund can be addressed or mitigated in the loan documents, however, certain other issues cannot be easily addressed therein. As a result, it is critical to identify potential issues prior to the time that a fund’s constituent documents are finalized. The complexity of the underlying fund documents and the relative importance of the provisions therein make due diligence essential in the context of establishing these facilities, as the devil is in the details. <b>TOPICS:</b>Real assets/alternative investments/private equity, fixed income and structured finance