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Part
1: Alpha Waves
The learning curve for alternative investments is a steep one. This
plain-language guide is meant to help pension trustees educate themselves
about the alternative world.
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Part
2: The Wheat From the Chaff
For many years during the 1990s it was conventional wisdom for plan
sponsors, big and small, to follow a certain pattern for investing.
Generally, trustees took a traditional approach whereby 60% of investments
went into stocks and 40% went into bonds. But the times are changing
for pension plans and they are increasingly looking to separate skilled
managers from the beta herd as they look to maximize their investment
portfolios and decrease liability.
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Part
3: Pitfalls of Hedge Fund Investing
"Manage the risk and the returns will come," is an oftcited
adage in the world of alternative investments. The problem in alternative
investments, however, is they are at the cutting edge of risk. It is
perhaps in the nature of the beast, but it seems that for every new
source of return hedge funds discover, they seem to turn up a new risk.
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Part
4: Bridging the Gap
The global infrastructure investment market is at an intriguing stage
for institutional investors. Investors all over the world are increasingly
becoming attracted to the stable, yield-dominated returns that this
long-term investment can provide.
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Part
5: The Inner Workings of Private Equity
Private equity is attracting its share of headlines. Although the focus
tends to be on the multi-billion dollar buyout funds doing multi-billon
deals, the reality is that private equity is going through a period
of unprecedented growth. While the numbers aren't final, it looks as
though a record US$275 billion will have been raised in private equity
in 2005, with the rate of capital-raising accelerating into 2006. In
the first quarter of 2006, 110 funds closed, raising an additional US$80
billion.
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Part
6: Building on Real Estate
Pension funds have had a rocky relationship with real estate. In the
early 1990s, Canadian pension plans had, on average, almost 7% of their
assets invested in real estate. But by the end of 2005, this percentage
had fallen to less than 4%. In truth, for most pension plans the figure
is much lower—large plans have much higher weightings, such as
the 13% of the Ontario Teachers' Pension Plan that is invested in real
estate, so medium and smaller pension funds have little or no real estate
exposure anymore.
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Part
7: The Long and the Short of It
Although institutional interest in and demand for many types of hedging
strategies have significantly increased, pension funds in general have
been hesitant to commit large asset pools to these strategies due to
their perceived lack of transparency, more complex structure, fee arrangements
and limited liquidity. For these investors, a 130/30 strategy may be
an appropriate alternative.
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Part
8: Strategic Moves
Pension funds are designed to be calculated risk-takers, with the overall
goal of earning returns in excess of a diversified benchmark portfolio
of asset classes. Derivatives can help pension funds attain their investment
policy objectives more efficiently, yet they are often characterized
as too high a risk. However, the risks associated with derivatives are
like those of undergoing surgery: they exist but are greatly minimized
in the hands of knowledgeable and skilled professionals.
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