The Investment Advisor Body of Knowledge + Test Bank

CHAPTER 12 Alternative Investments

Alternative investments are one of the most popular, intriguing, debated, and misunderstood topics in investments today. Investors are lured by the prospect of higher returns that may be created through both alpha and beta. Alternative investments however come with unique and significant risks and concerns including minimal regulation; voluntary, incomplete, and inaccurate reporting; survivorship bias; illiquidity risk; high fees; high minimum investments; and lack of transparency.

Despite these risks and concerns, investors and advisors alike are drawn to these investments believing there is an undiscovered potential for growth coupled with unique diversification benefits. To be sure, there is also a “cool” factor associated with alts, as they are sometimes known.

This chapter looks at a couple of different definitions of alternative investments as not all professionals agree on what alternatives are and how to classify or characterize them. The readings review the various investment asset classes and strategies represented by alternative investments and review the various investment structures through which these investments are made available. The chapter offers a thorough discussion of how investment advisors and consultants may analyze these alternative investments and incorporate them into an investment methodology or portfolio strategy.

Part I Handbook of Finance: Alternative Asset Classes

Learning Objectives

• Define alternative investments ...