Alternative Investments: Reassessment of Hedge & Private Equity Funds

“Although high returns are attractive, accurate risk measurement suggests that, after discounting returns at a reasonable rate, the investor is often poorly compensated for investments in alternative assets.”

As the alternative investment industry matured, a variety of industry-specific data bases began to track the structure, costs, returns (gross and net) to investors, and other salient features of both private equity and hedge funds. There are, however, significant differences in data collection and calculation methodologies between alternative investment data bases and indexes manufactured by Standard & Poors, Russell and other organizations. Some investors view alternative investment data bases as if they were benchmark indexes that investors can use to compare alternative investment returns to the returns of global stock and bond markets. The case for acquiring alternative investments is often bolstered by high returns reported in these data bases.

Given the losses incurred during the global financial crisis that began in 2007, trustees have become more skeptical of marketing claims, and regulators have become more attentive to certain business practices found in the alternative investment industry. Included in these concerns are…

 

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