Alternative Assets and Strategic Allocation: Rethinking the Institutional Approach

List of Illustrations ix

Acknowledgments xiii

Introduction 1

What Is Alternative about Alternative Investments? 5

The Plan of This Book 11

PART ONE | ANALYTIC TOOLS

1 Risk and Return 17

2 Return Enhancement 37

3 Some Features of the Quantitative Toolkit 59

4 Risk Estimation 81

PART TWO | SOME EXAMPLES

5 Long/Short Equity 103

6 Direct Lending 123

7 Merger Arbitrage 141

8 High-Frequency Trading 161

9 Holding Private Assets for Their Cash Flows 183

10 Fixed-Income Arbitrage 199

11 Event-Driven Investment 217

PART THREE | POSITION MANAGEMENT

12 Investment Strategies in Practice 237

13 Optionality 253

14 Trade Capacity 271

15 Institutional Liquidity 287

16 Tactical Allocation 305

17 Portfolio Liquidity 323

18 Alternative Investments and Information Theory 343

PART FOUR | PORTFOLIO CONSTRUCTION

19 Classification of Investments 361

20 Diversification among Strategies 381

21 Multi-Dimensional Risk 403

22 Filling Out the Allocation 419

23 Time and Tide 433

24 Managing the Allocation Decision 451

25 Concluding Remarks 469

Bibliography 477

Index 487