By Cornelius, Peter; Guennoc, Didier; Diller, Christian; Meyer, Thomas
Palms traders with robust new instruments for measuring and dealing with the dangers linked to a few of the illiquid asset periods With safe rates of interest and chance charges at list lows, many traders are turning to illiquid resources, akin to genuine property, deepest fairness, infrastructure and bushes, looking for improved returns and larger portfolio variety. yet as many analysts, traders and wealth managers are gaining knowledge of, such investments deliver with them a different set of dangers that can not be measured by means of common asset allocation versions. Written via a dream workforce of worldwide renow. �Read more...
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Extra resources for Mastering illiquidity : risk management for portfolios of limited partnership funds
As in the case of infrastructure investments, the investor acquires the right to receive regular payments as specified in the lease contract. 3 Finally, investments in natural resources focus especially on commodities, such as oil and gas, forestry and farmland. As far as the former are concerned, investments fall into two distinct categories. While holdings of proven oil and gas reserves generate cash flows that are highly correlated with energy prices, investments in exploration activities essentially represent real options.
Infrastructure investments can be made to fund the planning and construction phases of a project. Such investments are sometimes called primary investments, distinguishing them from secondary investments, which are related to the operational period. Depending on the specific project, secondary investments often have a very long investment horizon, sometimes several decades. Therefore, they are sometimes likened to a bond where the investor acquires the right to receive a stream of income over time.
The prudent man rule thus developed into a set of court-defined rules specifying what is generally imprudent, with several courts finding certain types of investment (such as second mortgages or new business ventures) intrinsically speculative and thus outside the universe of prudent investments. The various constraints and narrow judicial interpretations severely limited the types of investment that could be made and essentially again just left government securities and high-grade corporate bonds.