A or B PE offer relatively low diversification PE offer good diversification
A? as they are similar to Equities.
A. better as return enhancement than diversification tool.
B
yes, but the text uses “moderate” - making it quite hard to judge…
A 100%, PE is correlated with S&P as you invest in ‘microcap’ companies 
initial thoughts were - all Alt inv offer pretty good diversification…
Depends on the PE… I can have a PE vehicle that invests in Distressed Debt. Stupid question. PE will add diversification to most portfolios.
comp_sci_kid Wrote: ------------------------------------------------------- > A 100%, PE is correlated with S&P as you invest in > ‘microcap’ companies agree, thanks CSK. another point saved!
I hate when they try to lump HFs and PEs into a single bucket.
bigwilly Wrote: ------------------------------------------------------- > Depends on the PE… I can have a PE vehicle that > invests in Distressed Debt. Stupid question. PE > will add diversification to most portfolios. kinda agree with you willy, don’t think CFAI would have these kind of Qs in real exam
yeah, if they say PE that invests in distressed then both return and low correlation, but if they just say PE, iw ould say traditional PE (buyout,vc)
I think this is in one of the Book 6 exam questions - don’t have my books with me - but PE offers high returns and low diversification. I guess if they say something in the preamble that hints at diversification then maybe the diversification benefit is higher.
awesome memory kr.h2006! only posted part of the Q in compliance with the “Posting Copyrighted Materials Code”
Good return, not as good diversifcation benefits as other alternative investments. They tend to be correlated with equities.
oh haha yeah is that what that is? I didn’t understand why your original post was in that format. Copyright rules…ok.
Did they put distressed debt in PE category? It was in hedge fund category last year. Correct me if I am wrong since it has been awhile, but distressed debt fund buys debt and shorts equity of the same distressed firm. That certainly sounds like hedge fund strategy.
zigy Wrote: ------------------------------------------------------- > Did they put distressed debt in PE category? It > was in hedge fund category last year. Correct me > if I am wrong since it has been awhile, but > distressed debt fund buys debt and shorts equity > of the same distressed firm. That certainly sounds > like hedge fund strategy. what you described is distressed debt arb. regular distressed invests in HY debt
distressed debt can be PE or HF and the distinction is the length of the holding period and the level of “activeness” in the investment. HF: buy positions in distressed firms and hope for a turn around. they may lobby the board as active investors. usually looking for a short or medium term investment. PE: long-term investment that involves buying the company’s debt with the intention of taking the company over and fixing it from the inside out (i.e., highly active). edit: this is sometimes referred to as vulture funds. i think you are describing distressed debt arbitrage, which is a HF strategy.
OK, thanks.