Asset Allocation to Alternative Investments

Free CFA Level III: Portfolio Management lesson in Portfolio Construction. 26 min read, ~3,870 words.

Alternatives enter portfolios for diversification, return enhancement, or inflation hedging, each sub-class serves a different purpose. Data problems distort alternative return statistics: appraisal smoothing understates vol 30-50%, survivorship bias inflates hedge fund returns 200-400 bps. MVO over-allocates to alternatives because smoothed data makes them look low-risk and low-correlation, use risk...

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What this lesson covers

Content
Example 1
Example 2
Common Mistakes
Key Takeaways
Exam Shortcuts

Learning objectives

alt investments

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