Alternative Investments: CAIA Level I, 3rd Edition

CHAPTER 2 The Environment of Alternative Investments

This chapter provides an introduction to the environment of alternative investing, including the participants, the financial markets, regulations, liquid alternatives, and taxation. Its focus is on explaining the purposes and functions of these components so that readers gain an understanding of why the investing environment is structured the way it is and how the different components interact.

2.1 The Participants

Participants can be divided into four major categories: the buy side, the sell side, outside service providers, and regulators. This section briefly describes the primary roles of the first three categories of participants; the primary role of regulators is discussed in section 2.3.

2.1.1 The Buy Side

Buy side refers to the institutions and entities that buy large quantities of securities for the portfolios they manage. Buy side entities include asset owners and asset managers. The buy side contrasts with the sell side (detailed in section 2.1.2), which focuses on distributing securities to the public. Examples of buy-side institutions follow, with an emphasis on the perspective of alternative investing.

PLAN SPONSORS: A plan sponsor is a designated party, such as a company or an employer, that establishes a health care or retirement plan (pension) that has special legal or taxation status, such as a 401(k) retirement plan in the United States for employees. Plan sponsors are companies or other collectives that ...