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Subject 6. Risk management overview PDF Download
Managing risks associated with alternative investments can be challenging because these investments are often characterized by asymmetric risk and return profiles, limited transparency, and illiquidity.

Traditional risk and return measures such as mean return, standard deviation of returns, and beta may not provide an adequate picture of characteristics of alternative investments. Moreover, these measures may not be reliable or representative of specific investments.

Operational, financial, counterparty, and liquidity risks may be key considerations for those investing in alternative investments.

It is critical to do due diligence to assess whether (a) a potential investment is in compliance with its prospectus; (b) the appropriate organizational structure and policies for managing investments, operations, risk, and compliance are in place; and (c) the fund terms appear reasonable.

The inclusion of alternative investments in a portfolio, including the amounts to allocate, should be considered in the context of an investor's risk-return objectives, constraints, and preferences.

Learning Outcome Statements

g. describe risk management of alternative investments.

CFA® 2021 Level I Curriculum, 2021, Volume 6, Reading 50

User Contributed Comments 3

User Comment
abod2 The Key Risk Considerations for investing in alternative investments can be remembered through: "FOCaL" i.e. Financial, Operational, Counterparty, and Liquidity risks!
murphynan @abod2 I like this one !!
nmech1984 CFA L1... THE END!!!
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!


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