This book provides an overview of alternative investments fo r an institutional
asset allocato r o r overseer of a po r tfolio containing both traditional a nd alternative
assets. The reader is assumed to have broad knowledge of investing in
general a nd of traditional asset allocation in particular. The book is designed
to build on the reader’s existing knowledge by providing essential info r mation
about the characteristics, challenges, a nd purposes of alternative assets in the
context of a well-diversified institutional po r tfolio.
This book does not emphasize legal o r fiduciary responsibilities of trustees
a nd asset allocato r s. A Primer fo r Investment Trustees by Jeffrey V. Bailey,
CFA, a nd Thomas M. Richards, CFA, provides an excellent treatment of
those issues.1 This book emphasizes the financial economics of alternative
assets in a well-diversified institutional po r tfolio.
Asset allocation decisions are the dominant determinant of long-term
po r tfolio returns. Thus, the decisions of an institutional asset allocato r
regarding how much, if any, of the po r tfolio to allocate to alternative assets
a nd how to weight the various types of alternative assets are among the most
impo r tant determinants of po r tfolio return. Such decisions should be ba sed
on careful analysis a nd regular monito r ing.