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Investment Asset Classes

Investment Asset Classes. A Brief Introduction. Traditional Asset Classes. US Stocks $11.9T EAFE Stocks $14.4T US Fixed Income $13.9T Intl Fixed Income $17.2T US High Yield $.8T. Emerging Markets. EM Stocks $6.4T Bonds $.4T.

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Investment Asset Classes

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  1. Investment Asset Classes A Brief Introduction

  2. Traditional Asset Classes • US Stocks $11.9T • EAFE Stocks $14.4T • US Fixed Income $13.9T • Intl Fixed Income $17.2T • US High Yield $.8T

  3. Emerging Markets • EM Stocks $6.4T • Bonds $.4T

  4. Alternatives • Real Estate $11.5T/$90T • Commodities >$4T • Timberland $.06T • Hedge funds $1.6T* • PE $2T • VC .25T *Versus 22.4B worldwide in mutual funds

  5. Real Estate-How Much IS Publicly-Traded?

  6. Commodities as Asset Class

  7. Commodity Trading Vs Production

  8. Timber

  9. Timber • Traditionally institutional • ETFs CUT and WOOD • Asset Class Correlation • Bonds 0.03 • International Equity 0.76 • Domestic Equity 0.69 • REITs 0.55 • Commodities 0.20 • 3-Month T-Bill 0.08 • Source ETFDB.com

  10. Hedge Funds Not mutual funds Not subject to SEC regulation (so far) Organized as limited partnership Small number of sophisticated investors Common feature is use of leverage High returns in 1990s Lack of correlation has not held up recently

  11. Hedge Funds Different From Mutual Funds Investment by manager Limited to high net worth investors Concentrated bets Fees – large Little regulatory oversight Lack of liquidity Lack of transparency Asset allocation is slippery High attrition Can hold riskier assets Significant leverage

  12. Estimated Growth of Assets / Net Asset Flow Hedge Fund Industry 1990 – Q1 2007

  13. Some Hedge Fund Strategies Mutual funds are long-only Long/short equity Statistical arbitrage Market neutral Event Driven Global Macro Arbitrage Convertibles arbitrage Relative value

  14. Hedge Funds Near collapse of Long-Term Capital Management $3.6 billion bailout Precipitated SEC scrutiny of hedge funds

  15. Regulation of Hedge Funds Generally unregulated Exemption for less than 100 investors Exemption if accredited Scandals such as Canary Capital Partners Illegal trading with mutual funds Amaranth Advisors, 2006 SEC scrutiny

  16. Offshore Hedge Funds Major centers include Cayman Islands, Bermuda, Dublin, Luxembourg. Rules Generally not burdensome Anonymity Tax advantages

  17. The following 5 slides* are from: AIMA’s Roadmap To Hedge Funds published November, 2008 Alternative Investment Management Association * Also slide # 29

  18. Hedge Fund Fee Justification

  19. Returns According to Industry Group (IAMA)

  20. Example of Quick Summary - Timber

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