Chapter 20 CSC: Understanding Alternative Investments in
Portfolio Management
accredited investor - correct answer ✔✔An individual or institutional investor who meets
certain minimum requirements relating to income, net worth, or investment knowledge.
alternative investment - correct answer ✔✔Asset class that is different from the traditional
three broad asset classes of equities, bonds, and cash. Generally categorized for portfolio
management analysis into three groups: alternative strategy funds, alternative assets, and
private equity.
alternative assets - correct answer ✔✔Alternative assets refer to real assets held directly or
indirectly. Real assets include commodities, real estate, and collectibles.
alternative mutual fund - correct answer ✔✔A type of mutual fund that is permitted greater
usage of derivatives, leverage, short selling and investments in illiquid assets than conventional
mutual funds, but not the extent of hedge funds. Also known as liquid alternative or liquid alts.
drawdown - correct answer ✔✔Drawdown refers to peak-to-trough investment declines during
a specific period, expressed as a percentage of the peak value. Individual drawdowns measure
the percentage loss an investor would have realized if an investment was bought at its peak and
subsequently sold at its lowest point.
efficient frontier - correct answer ✔✔The curve that reflects the most efficient portfolios for all
levels of risk.
first-order risk - correct answer ✔✔Market-induced or systematic exposure to change in the
general direction of equity, fixed income, currency, and commodity markets that cannot be
reduced through diversification.
Portfolio Management
accredited investor - correct answer ✔✔An individual or institutional investor who meets
certain minimum requirements relating to income, net worth, or investment knowledge.
alternative investment - correct answer ✔✔Asset class that is different from the traditional
three broad asset classes of equities, bonds, and cash. Generally categorized for portfolio
management analysis into three groups: alternative strategy funds, alternative assets, and
private equity.
alternative assets - correct answer ✔✔Alternative assets refer to real assets held directly or
indirectly. Real assets include commodities, real estate, and collectibles.
alternative mutual fund - correct answer ✔✔A type of mutual fund that is permitted greater
usage of derivatives, leverage, short selling and investments in illiquid assets than conventional
mutual funds, but not the extent of hedge funds. Also known as liquid alternative or liquid alts.
drawdown - correct answer ✔✔Drawdown refers to peak-to-trough investment declines during
a specific period, expressed as a percentage of the peak value. Individual drawdowns measure
the percentage loss an investor would have realized if an investment was bought at its peak and
subsequently sold at its lowest point.
efficient frontier - correct answer ✔✔The curve that reflects the most efficient portfolios for all
levels of risk.
first-order risk - correct answer ✔✔Market-induced or systematic exposure to change in the
general direction of equity, fixed income, currency, and commodity markets that cannot be
reduced through diversification.
