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Alternatives 201: Practical Applications

Alternatives 201: Practical Applications. Our Panel Deborah Fields, Partner, KPMG LLC Allison Mortensen, CFA, Senior Investment Manager, Aberdeen Asset Management Inc. Jacqueline Rantanen, Principal in the Product Management Group, Hamilton Lane Brian Vargo , Partner, Dechert , LLP.

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Alternatives 201: Practical Applications

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  1. Alternatives 201: Practical Applications

  2. Our Panel • Deborah Fields, Partner, KPMG LLC • Allison Mortensen, CFA, Senior Investment Manager, Aberdeen Asset Management Inc. • Jacqueline Rantanen, Principal in the Product Management Group, Hamilton Lane • Brian Vargo, Partner, Dechert, LLP

  3. Alternative Investments –A Nontraditional Asset Class Alternative Investment

  4. Types of Alternative Investments

  5. Common Characteristics of Alternative Investments Nontraditional Asset Class • Run by expert management • Major investors in the funds they manage • Paid both management and performance or incentive fees • Not publicly traded, however consider PTPs • Use leverage to enhance returns • Illiquid, however consider hedge funds • Provide limited transparency to investors, but improving • Difficult to value • May be unregistered

  6. What is a Hedge Fund? • The first hedge fund was launched in 1949 by Alfred Winslow Jones, a Harvard-educated editor at Fortune magazine • This was three years before Harry Markowitz published his first article on Modern Portfolio Theory, “Portfolio Selection” (Journal of Finance) • Jones formed the fund, which invested in what he perceived to be successful (long) and unsuccessful (short) stocks and strategies, in order to seek profits regardless of market direction • It was called a “hedge fund” because the original intent was to hedge against declines in certain stock prices • Today, hedge funds have become more varied in style; in some cases, they are misnamed, as they do not attempt to hedge market risk

  7. Why invest in Hedge Funds? Potential Advantages: • Ability to short • Lower correlation • Volatility Management • Less drawdown in down markets • Diversified return characteristics Risks: • Can change risk profile of portfolio • Lack of liquidity • Lack of transparency

  8. Hedge fund strategy classifications Source: Hedge Fund Research , October 2013

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