Investors need to diversify the type assets ,
investments, or securities they include in their
portfolio to reduce risk and increase return.
Alternate assets other than Equity and Debt other
assets which can diversify portfolio include :
Alternate Investments like
Art & Antiques
Limitations on Alternate
Alternate Investments help to diversify reduce risk and
increase return but they have few limitations :
They are less regulated and less transparent than
traditional investments . This is why they r popular
with Institutional Investors than retail investors.
They are illiquid
Difficult to value as there is limited data available to
asses . Ex : Difficult to value a Start Up .
Most valuation is based on assumptions , which might
• Invest in early stage
companies .( on
• It is considered the
highest Risk area in
• Gestation period is
high but if succeeds
return is in
• Invest in existing
customer base ,
revenues , earnings.
• These are companies
which want to
expand and their
cash flows are not
• Will help in
planning for IPO
• Help the existing
share holders to exit
• Investments in
change the owner
• It can also be
making a public
company in to
• LBO- Leveraged Buy
outs ( Lot of debt
raised to but out )
• Buying out
companies on verge
• Specialize in
• Purchase at discount
to par value and if
would be higher .
Private Equity Strategies – Life cycle of companies
The success rate of VC industry is 7-8% gives 10X
return while 15% gives 3X return and 20% gives break
even and rest more than 50% of companies dies or in
PE are organized as partnerships that have a life cycle involving
fund raising (3-4 yrs) , deployment & investing (5-7 yrs) and
return of capital to investors after assets r sold.
PE is usually Limited partnership or LLP’s. PE firm that sets up
partnership , raises funds and finds suitable investments is
called General partner .
ex : Blackstone , Carlyle , CVC, AXA , ICICI PE etc.
Investors who contribute capital to the partnership are called
PE can have different funds for different types of Investments
and each fund may be managed by different Fund Managers.
Note : check PDF example
Real Estate refers to land and buildings
Many Investors focus their RE investments in
Commercial real estate ( income-generating)
As of 2011 , there was $26.6 trillion commercial RE
around globe – 40% of World GDP.
Commercial RE represents major portion of global
Major segments in Real Estate
Land : No Cash flow streams , Out flow in terms of taxes
Once approvals and permits are obtained and developed it
will have value.
Offices : Largest Segment of commercial Real estate .
Engaged on short term or long term lease. Rents increase
as per inflation so it protects cash flows against inflation .
Multi Family Residential Dwellings or Apartments
Retail : shopping malls , leases to long term to Key anchor
tenants and short term to others.
Industrial : Manufacturing facilities ,Warehouse etc
Real Investments – Investment
Investors can gain an equity exposure to real estate by purchasing directly or
either the private or public market .
In Private markets primary entities are real estate limited partnerships and real
estate equity funds.
Real estate limited partnerships operate like PE , where general partner is very
often Real estate development firm.
Real Estate Equity Funds hold investments in hundreds of commercial
properties . They are often open ended funds and they issue and redeem
REITS ( Real Estate investment trusts) ,are investments through public markets
- A Real Estate Investment Trust (REIT) is a trust that offers units to the public.
Generally speaking, REITs are vehicles which raise funds from investors,
acquire rent yielding real estate and distribute the income to investors. REITs
typically own & manage income producing properties and are required to
distribute most (90%) of the profits earned as dividend to unit-holders.
REITS are going to listed and traded in exchanges .
REIT - Example
Ascendas Real Estate Investment Trust ("A-REIT") is Singapore's first and largest listed business space
and industrial real estate investment trust with a diversified portfolio of 103 properties in Singapore
and 2 business park properties in China as at 31 March 2014.
A-REIT'S PORTFOLIO COMPRISES :
The China portfolio comprises two business park properties, one of which is located in Beijing and
the other in Shanghai. A-REIT's focus in China is to target higher value-added industries such as IT
and software companies as well as corporate headquarters of multi-national companies and large
local corporations within tier-one cities such as Beijing and Shanghai.
A-REIT hosts a customer base of around 1,300 international and local companies from a wide range of
industries and activities, including research and development, life sciences, information technology,
engineering, light manufacturing, logistics service providers, electronics, telecommunications,
manufacturing services and back-room support office in service industries, etc. Since its initial public
offering in November 2002, A-REIT has been paying out 100% of its income available for distribution.
Ascendas Funds Management (S) Limited ("AFM") is the manager of A-REIT (the "Manager"). The
Manager is committed to delivering predictable distributions and long-term capital stability to
Unitholders through a three-pronged strategy of:
Value-adding investments comprising development as well as acquisition of income-producing
properties with strong underlying real estate fundamentals;
Organic portfolio growth through proactive portfolio and asset management, including asset
enhancements and divestment; and
Prudent capital and risk management.
Commodities are physical products such as corn ,
wheat , copper , gold or oil . They tend to rise with
inflation and provide natural protect against inflation.
Invest in Commodity
Purchase physical stock , should have holding space and utilization need
Invest in equity of
companies which are in
But this will not direct
exposure to commodity
and will not get full
Derivatives . If investor is
bullish on Crude he can
purchase crude Future
at $ 106 today and if it
increases can sell future
and settle it in cash .
Invest in Structured
products that attempt to
replicate exposure to