Reading 34: Alternative Investments Portfolio Management－ including, principal, private, equity, estate

tycoon

CFA Institute Area 8-11, 13: Asset Valuation
Session 11: Alternative Investments for Portfolio Management
Reading 34: Alternative Investments Portfolio Management
LOS d: Distinguish among the principal classes of alternative investments, including real estate, private equity, commodity investments, hedge funds, managed futures, buy-out funds, infrastructure funds, and distressed securities.

tycoon

Within the alternative asset class of real estate, analysts can classify investments as:

A) either start-up or middle market but not as direct or indirect.

B) either direct or indirect but not as either start-up or middle market.

C) neither start-up or middle market nor as direct or indirect.

D) either direct or indirect and as either start-up or middle market.

---

Answer and Explanation

Real estate investments are generally categorized as direct (i.e., the purchase of land and buildings) or indirect that includes REITs and CREFs. The sub-categories of start-up and middle market apply to private equity and not real estate.

tycoon

Lee Benson, CFA, is considering purchasing stock in a company that produces oil. With respect to asset class and subgroup, as an alternative investment, this choice would be most accurately categorized as:

A) a direct investment in commodities.

B) a direct investment in real estate.

C) an indirect investment in commodities.

D) an indirect investment in real estate.

---

Answer and Explanation

Indirect invetment is one method used to gain exposure to commodities. Direct investment is the actual purchase of the commodities or the purchase of derivatives on commodities.

tycoon

Which of the following is least likely to be included in private equity subgroups?

A) Futures funds.

B) Start-up companies.

C) Middle-market private companies.

D) Private investment in public entities.

---

Answer and Explanation

Private equity subgroups are start-up companies, middle-market private companies, and private investment in public entities. The distinguishing feature for the subgroups is the stage of development of the company to which the invested dollars flow.