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The Journal of Alternative Investments

The Journal of Alternative Investments

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The Relative Merits of Alternative Investments in Passive Portfolios

Jacques Pézier and Anthony White
The Journal of Alternative Investments Spring 2008, 10 (4) 37-49; DOI: https://doi.org/10.3905/jai.2008.705531
Jacques Pézier
A visiting professor at ICMA Centre, Business School, University of Reading in Reading, UK.
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  • For correspondence: j.pezier@icmacentre.reading.ac.uk
Anthony White
A PhD candidate at ICMA Centre, Business School, University of Reading in Reading, UK.
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  • For correspondence: a.white@icmacentre.reading.ac.uk
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Abstract

Should optimal passive portfolios include allocations to commodities, volatility, hedge funds and private equity? What is the most attractive path to an investment in hedge funds: single manager hedge funds, fund of hedge funds (FoHF) or investable hedge fund indices (IHF)? This article addresses these questions using a methodology similar to Black-Litterman that combines views on the performance of various alternative investments with the market implied forecast for three traditional assets: bonds, equities and real estate. Assuming persistence of recent performance of alternative investments, the results indicate that it would be optimal to tilt the global market portfolio towards single manager hedge funds, commodities and private equity and away from traditional assets. The extent of the tilt depends on the degree of credibility assigned to one's views. From a methodological viewpoint, the empirical findings are dependent on both the choice of consideration set for alternative investments and the views expressed about its future performance.

TOPICS: Real assets/alternative investments/private equity, passive strategies, portfolio construction, performance measurement

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The Journal of Alternative Investments
Vol. 10, Issue 4
Spring 2008
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The Relative Merits of Alternative Investments in Passive Portfolios
Jacques Pézier, Anthony White
The Journal of Alternative Investments Mar 2008, 10 (4) 37-49; DOI: 10.3905/jai.2008.705531

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The Relative Merits of Alternative Investments in Passive Portfolios
Jacques Pézier, Anthony White
The Journal of Alternative Investments Mar 2008, 10 (4) 37-49; DOI: 10.3905/jai.2008.705531
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