Alternative assets : investments for a post-crisis world by Guy Fraser-Sampson

By Guy Fraser-Sampson

The funding panorama has replaced dramatically over the past few years, destroying a few of the previous certainties through which traders lived their lives. specifically, it has shaken trust within the skill of conventional asset varieties equivalent to bonds and equities to guard them from irregular marketplace stipulations, and it has introduced domestic how heavily correlation among varied markets might be squeezed jointly by way of severe strain.

Future traders must regard so-called "alternative" resources as crucial parts inside of their portfolios, and be ready to house the complexities that this can entail. it will in flip strength a re-appraisal of middle ideas resembling "risk" and "return", no longer least simply because a few replacement asset sessions don't lend themselves good to standard go back measures. fascinating occasions lie forward, yet a radical operating wisdom of many of the substitute asset periods might be an important pre-requisite to luck, and even perhaps to survival.

Alternative Assets meets investor's desire for a consultant on the place to allocate during this new weather. It offers traders with a primer on each one replacement asset category, in addition to useful pointers on the professionals and cons, implementation, returns research, charges and prices. It additionally bargains introductory counsel on the best way to set funding objectives, and the way replacement resources should be accommodated in the allocation technique. each one bankruptcy provides worthy history wisdom on a selected asset sort, together with a dialogue of even if a passable beta go back point exists and, if this is the case, the various ways that it would be accessed.

Written via best-selling writer man Fraser-Sampson, this ebook publications traders during the new glance replacement funding enviornment, supplying post-financial difficulty viewpoint and funding recommendation at the possible choices landscape.

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Example text

There are many who claim that the recent financial crisis2 has changed the world of investment for ever, and that a completely new approach may now be required. We shall return to consider this view at the end of the chapter. For the moment, let us note a few points and move on. It is true that the crisis highlighted various factors which had not previously been supposed to be particularly significant, of which the most obvious example would be counterparty risk. It also threw into prominence one issue the existence of which had never really been guessed at, though logically it might have been supposed to occur in certain circumstances, namely man-made correlation.

To do otherwise would be illogical. Either you would be taking extra risk for which you were not receiving any corresponding extra return (“unrewarded risk”), or you would be receiving a lower level of return than might otherwise be the case by selecting a different mix of assets without increasing the overall risk of your portfolio. Note here that under this classical view of risk and return you can theoretically slide your optimal portfolio up and down the line. You can “de-risk” by selling highly volatile assets and replacing them with less volatile ones, provided you are prepared to accept a lower rate of return.

However, it does not go far enough. It is not just that investors prefer certainty (even apparent or illusory “certainty”) to uncertainty. It is that most of them are completely unable to handle uncertainty in any shape or form, certainly in their decision processes. There has for example been much research into cognitive biases such as Ambiguity Bias (a heavily skewed bias towards an apparently more certain outcome) and Illusory Correlation (a bias towards seeking confirmation of an apparently more certain outcome from historic financial data, even to the extent of seeing patterns in the data which do not in fact exist).

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