Alternative Investments: An Overview

Alternative investments are defined as asset classes that fall outside of traditional investments, such as stocks, bonds, and cash. Real estate, private equity, commodities, managed futures, hedge funds, and distressed securities are all examples of alternative investments. Although the characteristics of each of these assets differ from the others, all tend to share the ability to offer diversification for a traditional portfolio through enhanced returns, reduced risk, and/or improved risk-adjusted performance. Yet, because of relative illiquidity, complexity, or minimum investment requirements, alternatives are often unsuitable or are beyond the reach of some investors. This chapter offers an overview to alternative investments and to the remaining 27 chapters. These chapters provide theoretical and empirical evidence about the usefulness of these assets in the portfolio management process.