Introduction To Alternative Investments (2022 CFA Level I Reading 47 – Alternative Investments)

Master the CFA Level I topic “Introduction to Alternative Investments” (Reading 47). This lecture explains what makes alternatives different from traditional assets and how they affect portfolio risk, return, and diversification. We cover categories such as hedge funds, private capital, natural resources, real estate, and infrastructure, plus fee structures and performance appraisal ratios. A worked example shows before- and after-fee returns under a 2&20 structure with a high-water mark.
What you’ll learn
• Types and categories of alternative investments
• Direct, co-investment, and fund structures
• Investment and compensation structures (management, incentive, hurdle, high-water mark)
• Characteristics of hedge funds, private capital, natural resources, real estate, infrastructure
• Performance appraisal: Sharpe, Sortino, Treynor; pitfalls with skewness and kurtosis
• Calculating returns before and after fees
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Topic 8 – Alternative Investments
Reading 47 – Introduction To Alternative Investments
0:00 Introduction and Learning Outcome Statements
2:45 LOS : Describe types and categories of alternative investments.
7:35 LOS : Describe characteristics of direct investment, co-investment and fund investment methods for alternative investments.
11:21 LOS : Describe investment and compensation structures commonly used in alternative investments.
13:37 LOS : Explain investment characteristics of hedge funds.
17:37 LOS : Explain investment characteristics of private capital.
20:28 LOS : Explain investment characteristics of natural resources.
22:24 LOS : Explain investment characteristics of real estate.
24:30 LOS : Explain investment characteristics of infrastructure.
26:06 LOS : Describe issues in performance appraisal of alternative investments.
31:41 LOS : Calculate and interpret returns of alternative investments on both before-fee and after-fee bases.
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