Course Content
Alternative Investments Vs. Traditional Investments
This topic is covered under LOS A of Reading 58
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LOS A
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LOS A
Categories of Alternative Investments
This topic is covered under LOS B of Reading 58
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LOS B
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LOS B
Benefits of Alternative Investments
This topic is covered under LOS C of reading 58, which requires you to 'describe potential benefits of alternative investments in the context of portfolio management'.
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LOS C
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LOS C
Hedge Funds, Private Equity, Real Estate, Commodities, Infrastructure, and Other Investment – Explained
This topic is covered under LOS D and E of Reading 50, which requires us to: a. describe hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, including, as applicable, strategies, subcategories, potential benefits and risks, fee structures, and due diligence; b. describe, calculate, and interpret management and incentive fees and net-of-fees returns to hedge funds; and c. describe issues in valuing and calculating returns on hedge funds, private equity, real estate, commodities, and infrastructure.
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Hedge Funds
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Private Equity
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Real Estate
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Commodities
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Infrastructure
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Others
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LOS D and E
Risk Management
This topic is covered under LOS G of Treading 58, which requires us to 'describe risk management of alternative investments'.
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LOS F
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LOS F
Alternative Investments – Question Bank
Some questions to test your level of preparation for the exam.
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Question Bank
Alternative Investments
About Lesson

1.  Infrastructure includes the real, capital-intensive, long-lived assets intended for public use.

2.  The infrastructure assets are generally owned, financed, and operated by the government. However, off-lately, the private sector involvement is increasing.

3.  These are, typically, financed through leaseback, build &sell, and hold & operating model strategies.

4.  Infrastructure investments are mainly considered as an appealing investment option because:

5.  It has inelastic demand,

    a.  There is a high-cost barrier to entry, hence low competition,

    b.  It has stability in cash flows that adjust for growth and inflation, and

    c.  It has huge potential for capital appreciation.

1.  Categories of Infrastructure Funds

There are basically two main categories based on the facilities provided by the infrastructure investments, they are:

1.  Economic Infrastructure. These are the investments that support economic activity. Examples of economic infrastructure are roads, bridges, tunnels, airport lines, etc. involved in providing transportation services, and utility services such as transmission, storage, and distribution of gas, water, and electricity, treatment of waste, etc.

2.  Social Infrastructure. This includes services such as education, health care, etc.

Based on the stage of development, it can be categorized into:

1.  Brownfield Infrastructure. It involves investment in existing assets. This mainly happens when the government wants to privatize, lease out, or sell any infrastructure facility. The investor has the operating and financial history of the project in such cases.

2.  Greenfield Infrastructure. This involves the investment in the assets that need to be constructed. The main intention behind such investment is to either hold and operate or sell/lease back to the government.

Based on the geographical locations, the investment in infrastructure projects can be made.

2.  Forms of Investment in Infrastructure

2.1.  Direct Investment

1.  Under direct investment, the investor controls the assets.

2.  This form of investment requires huge capital commitment and has concentration and liquidity risk associated.

3.  The operational responsibility also lies with the investor in the case of direct investment.

2.2.  Indirect investment

Indirect investment in infrastructure includes the purchase of shares of the companies, ETFs, listed funds, and shares in private equities involved in the infrastructure development projects.

2.3.  Master Limited Partnership (MLPs)

These are the pass-through entities that trade on an exchange, having partnership structures like hedge funds. The investors are responsible for the tax under such investment.

3.  Risk and Return Overview

1.  Infrastructure investments are characterized by stable cash flows and a high dividend payout ratio. However, they are also marked by lesser growth and lower total expected return.

2.  Infrastructure investments are subject to revenue shortfalls, operational risk, construction risk, and regulatory risks.

 

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