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Research
Evaluating alternatives: A case study
Fidelity Institutional Wealth Adviser illustrates the importance of manager research capabilities when investing in alternatives.
Alternative asset classes entail many complexities and idiosyncratic risks, resulting in higher manager dispersion than in traditional asset classes. Diligence to evaluate an alternative strategy can thus take months or even years, by an experienced team. In the article below, the FIWA Alternative Investments Research Team presents a hypothetical case study to illustrate an example of a private market manager strategy diligence process. This article introduces a general philosophy for how to approach the research and the scope of work involved, highlighting the critical need for strategy selection capabilities when investing in alternatives.
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Evaluating alternatives: a case study
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Alternative investments are investment products other than the traditional investments of stocks, bond, mutual funds, or ETFs. Examples of alternative investments are limited partnerships, limited liability companies, hedge funds, private equity, private debt, commodities, real estate, and promissory notes. Some of the risks associated with alternative investments are: Alternative investments maybe relatively illiquid. It may be difficult to determine the current market value of the asset. There may be limited historical risk and return data. A high degree of investment analysis maybe required before buying. Costs of purchase and sale may be relatively high.
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