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AF230: Alternative Investments

Session: One

Prerequisites: Basic mathematics and statistics. Introductory finance (to the level of AF250). Introductory microeconomics (to the level of EC101).

Dr Jack Favilukis
Dr Konstantinos Zachariadis

In the era of significant market turmoil institutional, as well as individual, investors look beyond traditional investment vehicles such as bonds and shares. For example, the price of gold substantially increased in 2009. 

The purpose of this course is to explore the world of alternative investments such as investments on hedge funds, private equity / venture capital funds, real estate, and commodities, either directly or through funds of funds. The course will combine theory with empirical exercises, allowing students to get a "hands-on" experience. We want to see what the return-risk characteristics of alternative investments are, what attributes to their appeal, how to understand related technical publications, and how to construct a portfolio using them.

Topics will include:

  • Overview of Alternative Assets
  • Hedge Funds
    • A Hedge Fund Investment Program
    • Due Diligence
    • Risk Management
    • Regulation
    • Funds of Funds
  • Commodities and Managed Futures
    • Investing in Commodity Futures
    • Managed Futures
  • Venture Capital (VC)
    • Raising Funds
    • Valuation of Investments
    • Initial Public Offerings (IPOs)
  • Leveraged Buyouts (LBOs)
    • Financing and Leverage
    • LBO valuation
    • Value Added
    • Exit Strategies
  • Real Estate
    • Real Estate and an Investment Asset
    • Valuation
    • Securitisation and Mortgage Backed Securities (MBSs)
    • Real Estate Investment Trusts (REITs)
    • Demographics

As part of class work students will be encouraged to work with data (in Excel). Particular data work will include measuring the risks of investment portfolios, calculating the alphas of Hedge Fund strategies, evaluating an LBO deal, evaluating a VC deal, and pricing an MBS.

There will be guest lectures by practitioners from the Hedge Fund and Private Equity industries.

Part of the course is covered in the following textbook, additional material will be distributed.
"Handbook of Alternative Assets", by Mark J. P. Anson, John Wiley & Sons (2006).

Lectures: 36 hours    Classes: 12 hours
Assessment: Two written examinations