CAIA: Chapter 1 What is an Alternative Investment

privately organized investment vehicle that uses its less regulated nature to generate investment opportunites that are substantially destinct from opportunities offered by traditional investments restricitng use of derivatives and leverage.

...are homogenous goods available in large quantities, such as energy products, agricultural products, metals, and bulding materials. In CAIA commdoities are mainly future contracts.

...include both equity and debt positions that, among other things, are not publicly traded. In most cases, the debt positions contain so much risk from cash flow uncertainty that their short-term return behaviour is simliar to that of equity positions.

...refers to support via equity financing to start-up companies that do not have a sufficient size, track record, or desire to attract capital from traditional sources

....refer to those transactions in which the equity of a publicly traded company is purchased using a small amount of investor capital and a large amount of borrowed funds to take the firm private.

...derives is name from its position in the capital structure of a firm between the ceiling of senior secured debt and the floor of equity. Mezzanine debt refers to a spectrum of risky claims including preferred stock, convertible debt, ...

...refers to the debt of companies that have filed or are likely to file for bankrupcy protection in the near future.

are instruments created to exhibit particular return, risk, taxation or other attributes. These instruments generate unique cash flows resulting from the partitioning of the cash flows from a traditional investment or by linking returns to market values.

refers tot eh role of government, including both regulation and taxation, influencing the nature of an investment

refers to the structuring of cash flows through securitization.

..is the process of transforming asset ownership into tradable units. The use of securities and security structuring transforms asset ownership into potentially distinct and diverse tradable investment opportunities.

refers to the role of an investment vehicle's investment managers in developing and implementing trading strategies .

refers to the ways that organizational issues, especially compensation schemes, influence particular investments.

refers to the financial markets and financial institutions related to a particular investment, such as whether the investment is publicly traded.

alternative investments are often synonymous with diversifiers

investment products viewed as having little or no return colleration with traditional assets are also often termed absolute return products since their returns should generally be analyzed on an absolute basis rather than relativ to returns of traditional

means that the investment trades infrequently and/or with low volume (thinly). Illiquidity means that returns are difficult to observe due to the lack of trading and that realized returns may be affected by the trading decisions of a few paricipants.

..are assets that can only be bought and sold in specific quantities, such as large real estate projects

refers to the tendency of market prices to reflect all available information

...refers to the deviation of actual valuations from those valuations that would be anticipated in an efficient market.

the returns of many alternative investments are structured so that they are infrequently traded, and therefore their market returns are measured over longer time intervals.

refers to efforts of buying and selling securities to earn superior combinations of risk and return. Alternative investment analysis typically focuses on evauation acitive managers and their systems of active management, (most alt. investments =actively m

tends to focus on buying and holding securites in an effort to match the risk and return of a target such as highly diversified index

the returns o fthe fund would typically be comprared to the benchmark return, which is the return of the benchmark index or benchmark portfolio

is the difference between the return of a portfolio and its benchmark that is due to active management

means that returns are to be evaluated realtive to zer - or relative to the riskless rate

means that returns are to be evaluated relative to a benchmark

the term is often used to represent efforts to earn superior returns even when risk is not eliminated acuase the long and short positions are not in identical assets or are not held over the same time interval

If the primary objective of including an investment product in a portfolio is the superior average returns that it is believed to offer, then the product is often reffered to as a return enhancer.

If the primary objective of including an investment product in a portfolio is for the reduction in the portfolio's risk that is believed to offer through its lack of correlation with the portfolio's assets, then that product is often referred to return di