Fabian Bocart, C. Hafner, Yulia Kasperskaya, M. Sagarra
We build quarterly and semi-annual indexes for American and European comic art based on a dataset of more than 106,000 comic art items sold at auction. We find that this new alternative investment can outperform US and European equities and bonds. Between 2002 and 2017, annualized returns of US comic artworks outperformed most asset classes with a solid 11% annualized return, while European comic art achieved 25% yearly returns on average after 2009. We show that comic art delivers significant diversification benefits to an investment portfolio due to low correlations with other assets and geographical diversification between European and American markets. These outcomes contrast with fine art in general, which delivered few diversification benefits when compared to equities and bonds between 2002 and 2017, and whose geographical markets are closely tied.
{"title":"Investing in Superheroes? Comic Art as a New Alternative Investment","authors":"Fabian Bocart, C. Hafner, Yulia Kasperskaya, M. Sagarra","doi":"10.3905/jai.2022.1.174","DOIUrl":"https://doi.org/10.3905/jai.2022.1.174","url":null,"abstract":"We build quarterly and semi-annual indexes for American and European comic art based on a dataset of more than 106,000 comic art items sold at auction. We find that this new alternative investment can outperform US and European equities and bonds. Between 2002 and 2017, annualized returns of US comic artworks outperformed most asset classes with a solid 11% annualized return, while European comic art achieved 25% yearly returns on average after 2009. We show that comic art delivers significant diversification benefits to an investment portfolio due to low correlations with other assets and geographical diversification between European and American markets. These outcomes contrast with fine art in general, which delivered few diversification benefits when compared to equities and bonds between 2002 and 2017, and whose geographical markets are closely tied.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-09-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47521534","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
G. Filbeck, Keith H. Black, A. Filbeck, Hossein Kazemi
Alternative data and machine learning present many exciting opportunities for researchers. In this panel discussion, we provide background information, the current state of research, investment applications, and a glimpse into the future using alternative data and machine learning. As barriers to adoption are addressed, the growth of alternative data and machine learning will continue its exponential trend.
{"title":"PANEL DISCUSSION SUMMARY: Alternative Data and Machine Learning","authors":"G. Filbeck, Keith H. Black, A. Filbeck, Hossein Kazemi","doi":"10.3905/jai.2022.1.173","DOIUrl":"https://doi.org/10.3905/jai.2022.1.173","url":null,"abstract":"Alternative data and machine learning present many exciting opportunities for researchers. In this panel discussion, we provide background information, the current state of research, investment applications, and a glimpse into the future using alternative data and machine learning. As barriers to adoption are addressed, the growth of alternative data and machine learning will continue its exponential trend.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-07-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70072585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In recent years, the differing forms of social lending have become a widely researched area. One of the most extensive business models is peer-to-peer lending (P2P), in which an online platform connects lenders and borrowers. The segment’s rapid growth has attracted the attention of market participants and created a deeper understanding of this new form of financial intermediation. The purpose of this article is to contribute to the existing literature by examining the borrower side of P2P lending. The analysis is based on a unique, manually collected dataset from a market-leading platform in the United States. We use LASSO regression to examine the relationship between applications and a wide range of local microeconomic and socioeconomic indicators. Then we apply k-means cluster analysis to identify borrower groups with similar characteristics. The results indicate a strong positive correlation between the portion of mortgage delinquency and demand for P2P funding. Furthermore, the platform’s customer base significantly overlaps with bank clients.
{"title":"The Characteristics of Peer-To-Peer Applicants","authors":"Tímea Ölvedi","doi":"10.3905/jai.2022.1.171","DOIUrl":"https://doi.org/10.3905/jai.2022.1.171","url":null,"abstract":"In recent years, the differing forms of social lending have become a widely researched area. One of the most extensive business models is peer-to-peer lending (P2P), in which an online platform connects lenders and borrowers. The segment’s rapid growth has attracted the attention of market participants and created a deeper understanding of this new form of financial intermediation. The purpose of this article is to contribute to the existing literature by examining the borrower side of P2P lending. The analysis is based on a unique, manually collected dataset from a market-leading platform in the United States. We use LASSO regression to examine the relationship between applications and a wide range of local microeconomic and socioeconomic indicators. Then we apply k-means cluster analysis to identify borrower groups with similar characteristics. The results indicate a strong positive correlation between the portion of mortgage delinquency and demand for P2P funding. Furthermore, the platform’s customer base significantly overlaps with bank clients.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47548632","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite the widespread acceptance of the ESG concept, its adoption by the hedge fund industry has been relatively slower than in other asset classes. A series of misconceptions and myths seems to hinder the conviction level in the hedge fund universe. This article examines the top misconceptions about ESG integration and hopefully clears a path for increased adoption in the hedge fund investment management process. It argues that ESG integration can be adopted in all hedge fund strategies and provides meaningful benefits to both hedge funds and their clients. By incorporating ESG considerations early in the initial underwriting process, a hedge fund manager can potentially improve the future risk-adjusted return for the fund without necessarily creating a social tilt in the portfolio. Importantly, senior leadership should champion its firm-wide adoption by being intentionally strategic about the time commitment and resource allocation.
{"title":"Hedge Funds: Resolving Myths about ESG Integration","authors":"Dulari Pancholi","doi":"10.3905/jai.2022.1.172","DOIUrl":"https://doi.org/10.3905/jai.2022.1.172","url":null,"abstract":"Despite the widespread acceptance of the ESG concept, its adoption by the hedge fund industry has been relatively slower than in other asset classes. A series of misconceptions and myths seems to hinder the conviction level in the hedge fund universe. This article examines the top misconceptions about ESG integration and hopefully clears a path for increased adoption in the hedge fund investment management process. It argues that ESG integration can be adopted in all hedge fund strategies and provides meaningful benefits to both hedge funds and their clients. By incorporating ESG considerations early in the initial underwriting process, a hedge fund manager can potentially improve the future risk-adjusted return for the fund without necessarily creating a social tilt in the portfolio. Importantly, senior leadership should champion its firm-wide adoption by being intentionally strategic about the time commitment and resource allocation.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48409250","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article explores recent regulatory impacts on the basis spread between an entity’s single-name Credit Default Swap (CDS) and its bond spread. This spread is commonly referred to as the CDS-bond basis. In 2010, Congress passed Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate the over-the-counter (OTC) swap market. A major contribution of Title VII was that it added central clearing of OTC swaps, which intended to reduce counterparty risk and improve risk management practices in the swap market. After comparing results from before and after the initiation of central clearing of single-name CDS, we can make three contributions to the existing literature. First, counterparty default risk has less explanatory power as a driver of the CDS-bond basis after clearing is initiated. Second, CDS-bond basis spreads are higher following CDS clearing initiation. Last, bond spreads of the underlying entities of cleared, single-name CDS are lower after the initiation of central clearing. Results are robust to a control sample of non-cleared firms.
{"title":"Bond Spreads and CDS-Bond Basis: Impact of Dodd-Frank Title VII","authors":"Eric McAlley","doi":"10.3905/jai.2022.1.170","DOIUrl":"https://doi.org/10.3905/jai.2022.1.170","url":null,"abstract":"This article explores recent regulatory impacts on the basis spread between an entity’s single-name Credit Default Swap (CDS) and its bond spread. This spread is commonly referred to as the CDS-bond basis. In 2010, Congress passed Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate the over-the-counter (OTC) swap market. A major contribution of Title VII was that it added central clearing of OTC swaps, which intended to reduce counterparty risk and improve risk management practices in the swap market. After comparing results from before and after the initiation of central clearing of single-name CDS, we can make three contributions to the existing literature. First, counterparty default risk has less explanatory power as a driver of the CDS-bond basis after clearing is initiated. Second, CDS-bond basis spreads are higher following CDS clearing initiation. Last, bond spreads of the underlying entities of cleared, single-name CDS are lower after the initiation of central clearing. Results are robust to a control sample of non-cleared firms.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42945856","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Investors in private assets typically must commit their funds to an asset manager. It is only after those funds are called at some unknown later date that investors receive exposure to the desired assets. We review data on calls and distributions for private equity and private debt funds over the past 30 years. We characterize the speed of calls and distributions for each asset, the impact the call speed (or lack thereof) has on investors’ realized return on their committed capital, and the extent to which this call risk can be diversified across managers. Finally, we use the historical call data to illustrate “liquidity tiering,” an asset allocation strategy that helps investors manage against their future commitments.
{"title":"Cash for Calls: A Quantitative Approach to Managing Liquidity for Capital Calls","authors":"J. Schneider, S. Klein, Wade Sias, Simon Fan","doi":"10.3905/jai.2022.1.169","DOIUrl":"https://doi.org/10.3905/jai.2022.1.169","url":null,"abstract":"Investors in private assets typically must commit their funds to an asset manager. It is only after those funds are called at some unknown later date that investors receive exposure to the desired assets. We review data on calls and distributions for private equity and private debt funds over the past 30 years. We characterize the speed of calls and distributions for each asset, the impact the call speed (or lack thereof) has on investors’ realized return on their committed capital, and the extent to which this call risk can be diversified across managers. Finally, we use the historical call data to illustrate “liquidity tiering,” an asset allocation strategy that helps investors manage against their future commitments.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47219169","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Network theory helps to resolve allocation problems and issues of systematic risk propagation in hedge fund networks because it allows for the hedge funds to be shown as interacting entities. Importance scores and cluster analysis support the understanding of risk propagation and causality, and capture the time-varying interconnectedness among hedge fund strategies. Furthermore, considering cluster affiliation, network metrics derived from importance scores help separate active management from active risk monitoring and build diversified portfolios. Hedge fund indexes with large centrality scores are less meaningful as risk indicators because the importance scores are time-varying. Hedge fund indexes with low centrality scores are weakly connected, but their diversification and return enhancement advantages are time-varying. Correlation networks use asset prices, are the most widely used graphs, and are easy to implement. However, the difference between directed and correlation networks is one of the most important factors because there is a direction in risk flow.
{"title":"Hedge Fund Networks","authors":"Gueorgui S. Konstantinov","doi":"10.3905/jai.2022.1.168","DOIUrl":"https://doi.org/10.3905/jai.2022.1.168","url":null,"abstract":"Network theory helps to resolve allocation problems and issues of systematic risk propagation in hedge fund networks because it allows for the hedge funds to be shown as interacting entities. Importance scores and cluster analysis support the understanding of risk propagation and causality, and capture the time-varying interconnectedness among hedge fund strategies. Furthermore, considering cluster affiliation, network metrics derived from importance scores help separate active management from active risk monitoring and build diversified portfolios. Hedge fund indexes with large centrality scores are less meaningful as risk indicators because the importance scores are time-varying. Hedge fund indexes with low centrality scores are weakly connected, but their diversification and return enhancement advantages are time-varying. Correlation networks use asset prices, are the most widely used graphs, and are easy to implement. However, the difference between directed and correlation networks is one of the most important factors because there is a direction in risk flow.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-06-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46869517","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article explores the factors affecting the syndication strategies of Indian Venture Capital and Private Equity (VCPE) firms. Analysis of 5,399 VCPE investment deals from 1998 to 2016 shows that firms’ preferences to syndicate are significantly affected by the characteristics of the VCPE firms, the investee firms, and the agreement itself. More specifically, experience and ownership (foreign vs. domestic) of the VCPE firm, age and industry of the investee firm, and size and stage of the investment deal influence the syndication preferences, reflecting the finance and resource motives for syndication. Our empirical analysis shows that younger VCPE firms and those with domestic investors may have a resource motive for syndication, preferring to manage the high market and technological risks associated with VCPE investing through syndication. In addition, to tackle information asymmetry, Indian VCPE firms are likely to syndicate when they invest in younger companies and those with high innovation and technology quotients. Similarly, VCPE firms reveal evidence of the financial motive for syndication. They strategize to diversify risks when the investment size is large or the stage of the investment deal is early.
{"title":"Syndication Strategies of Venture Capital and Private Equity Firms in India—An Empirical Investigation","authors":"Poonam Dugar, Mita H. Suthar","doi":"10.3905/jai.2022.1.167","DOIUrl":"https://doi.org/10.3905/jai.2022.1.167","url":null,"abstract":"This article explores the factors affecting the syndication strategies of Indian Venture Capital and Private Equity (VCPE) firms. Analysis of 5,399 VCPE investment deals from 1998 to 2016 shows that firms’ preferences to syndicate are significantly affected by the characteristics of the VCPE firms, the investee firms, and the agreement itself. More specifically, experience and ownership (foreign vs. domestic) of the VCPE firm, age and industry of the investee firm, and size and stage of the investment deal influence the syndication preferences, reflecting the finance and resource motives for syndication. Our empirical analysis shows that younger VCPE firms and those with domestic investors may have a resource motive for syndication, preferring to manage the high market and technological risks associated with VCPE investing through syndication. In addition, to tackle information asymmetry, Indian VCPE firms are likely to syndicate when they invest in younger companies and those with high innovation and technology quotients. Similarly, VCPE firms reveal evidence of the financial motive for syndication. They strategize to diversify risks when the investment size is large or the stage of the investment deal is early.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46443501","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article reviews methods that can be used to value illiquid investments, focusing on private equity and real estate. The authors discuss the traditional valuation methods, particularly the net present value (NPV) rule, and show in what circumstances these can lead to suboptimal investment decisions. Emphasis is placed on a real option valuation framework that can alleviate some of the drawbacks of traditional approaches. A new jump-diffusion option pricing model and a numerical example are presented to show the usefulness of such a framework in valuing illiquid assets, in particular venture capital funds. They maintain that, under harmonized parameter estimation techniques, the NPV rule can be viewed as the lower bound in a competitive market and the real option exercise criteria and valuation models as providing the upper bound to value and time investments in illiquid assets. The knowledge of such bounds should enhance the decision-making process concerning allocating funds to alternative investments.
{"title":"The Valuation of Illiquid Assets: A Focus on Private Equity and Real Estate","authors":"Rajna Gibson Brandon, Martin Hoesli, Jiajun Shan","doi":"10.3905/jai.2022.1.163","DOIUrl":"https://doi.org/10.3905/jai.2022.1.163","url":null,"abstract":"This article reviews methods that can be used to value illiquid investments, focusing on private equity and real estate. The authors discuss the traditional valuation methods, particularly the net present value (NPV) rule, and show in what circumstances these can lead to suboptimal investment decisions. Emphasis is placed on a real option valuation framework that can alleviate some of the drawbacks of traditional approaches. A new jump-diffusion option pricing model and a numerical example are presented to show the usefulness of such a framework in valuing illiquid assets, in particular venture capital funds. They maintain that, under harmonized parameter estimation techniques, the NPV rule can be viewed as the lower bound in a competitive market and the real option exercise criteria and valuation models as providing the upper bound to value and time investments in illiquid assets. The knowledge of such bounds should enhance the decision-making process concerning allocating funds to alternative investments.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41950929","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article aims to deal with two problems: (1) how to formally comply with the look-through requirement under various financial regulations and (2) how to address biases in financial reporting for Alternative Investment Funds (AIFs) investing in private equity and real assets. The approach suggested here aims to work within the confines of existing regulation and with the reporting data provided by the fund management industry already today. It aims to incorporate insights on portfolio companies gained by a look-through into a model of the fund’s cash-flows. Compared to traditional approaches based on historically observed cash-flows for comparable funds, such a look-through can increase the reliability of cash-flow projections and result in a better attribution of risk factors to the individual portfolio components. For this purpose, the author differentiates between a simple, enhanced, strong, and full look-through.
{"title":"Reconciling Limited Partners’ Cash-Flow Forecasting with the Look-Through for AIFs","authors":"T. Meyer","doi":"10.3905/jai.2022.1.162","DOIUrl":"https://doi.org/10.3905/jai.2022.1.162","url":null,"abstract":"This article aims to deal with two problems: (1) how to formally comply with the look-through requirement under various financial regulations and (2) how to address biases in financial reporting for Alternative Investment Funds (AIFs) investing in private equity and real assets. The approach suggested here aims to work within the confines of existing regulation and with the reporting data provided by the fund management industry already today. It aims to incorporate insights on portfolio companies gained by a look-through into a model of the fund’s cash-flows. Compared to traditional approaches based on historically observed cash-flows for comparable funds, such a look-through can increase the reliability of cash-flow projections and result in a better attribution of risk factors to the individual portfolio components. For this purpose, the author differentiates between a simple, enhanced, strong, and full look-through.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2022-04-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44419997","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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