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Understanding Alternative Investments

What are alternative investments?

What role do alternative investments play in a portfolio?
How can alternative investments provide disciplined risk management?
How can alternatives achieve higher rates of return?
When should I invest in alternatives?

How can I invest in alternatives at Oppenheimer?

Hedge Funds
Private Equity
Private Debt
Real Assets
Public and Private Real Estate

Glossary

  1. Alpha

    A measure of nonsystematic return—one that cannot be attributed to market gains or losses—that shows how the portfolio would have performed had the market had no gain or loss.

  2. Closed-end Funds

    Funds that have a predetermined term life that can be extended at the discretion of the general partner, where committed capital is locked up for the term of the fund until liquidation occurs. Leveraged buyout and venture capital funds are typically closed-end.

  3. Correlation

    A statistic that measures the extent to which two securities move in relation to each other. Positive correlation suggests that the performance of securities move up or down together, while negative correlation implies they move in opposite directions.

  4. Diversification

    A risk management strategy used during portfolio construction that combines different types of assets to yield higher long-term returns with a lower risk profile.

  5. Downside Capture

    The percentage of market losses endured by a manager when markets are down.

  6. J-curve Effect

    A characteristic of private equity funds whereby returns are negative at the onset due to management fees and other costs but as the investment matures, it begins to realize gains and generate positive cash flows.

  7. Leverage

    Leverage is an investment strategy that uses borrowed money or debt—specifically through various financial instruments—to increase the potential return of an investment. It can multiply potential returns but it also multiplies the downside risk of the investment.

  8. Open-end Funds

    Funds that offer more liquidity to investors, featuring the opportunity for regular subscriptions and redemptions with a specified notice period. Hedge funds are typically open-end.

  9. Upside Capture

    The percentage of market gains captured by a manager when markets are up.