Module 1 · Alternative Investments

Alternative Investment Features, Methods, and Structures

EN: Conceptual — common features of alternative investments; how investors access them.
VN: Đặc điểm chung của đầu tư thay thế và cách tiếp cận.

1. Common Features Concept

About: Illiquidity, limited regulation, active management, leverage, high fees ('2 and 20'), low correlation with public markets in normal times.Tóm tắt: Thanh khoản kém, ít quy định, quản lý chủ động, leverage, phí cao (2/20), low correlation.

Illiquidity Long lock-up periods; redemptions often quarterly or longer.
Limited regulation Less disclosure than public markets.
Active management Skill-based returns; high-information advantage.
Leverage Common — amplifies returns and risks.
High fees Typical "2 and 20" — 2% mgmt + 20% performance.
Diversification Lower correlation with public markets (but rises in stress).

2. Investment Methods Concept

About: Direct, co-investment (alongside fund manager, often no fees), fund (LP/LLC), fund of funds (extra layer of fees but more diversification).Tóm tắt: Direct, co-invest, fund (LP/LLC), fund of funds (thêm layer phí).

Direct Invest directly in the asset (real estate, art).
Co-investment Alongside a fund manager, often without fees.
Fund Pool resources via limited partnership / LLC.
Fund of funds Diversified across managers (extra layer of fees).

3. Common Fee Structure Concept

About: '2 and 20' baseline (2% mgmt + 20% perf). Hurdle rate, high-water mark, catch-up provisions modify when carry is paid. Modeling impact is complex.Tóm tắt: 2/20. Hurdle, HWM, catch-up điều chỉnh khi carry được trả.

Mgmt fee 1–2% of AUM annually.
Perf fee / carry 20% of profits, often above a hurdle rate.
Hurdle Min return before performance fee kicks in.
High-water mark Performance fee only on net new gains above prior peak.
Catch-up 100% of profits to GP until they reach their share, then split.

Practice problem Practice

Practice problem

A hedge fund has a 1.5% management fee and 20% performance fee with a high-water mark. Last year NAV fell 5%; this year NAV recovers 10%. Performance fee paid?

Show solution

High-water mark: performance fee only on net gains above prior peak.

Y1: −5% → no performance fee, HWM stays at original level.

Y2: +10% → fund must first recover the 5% loss before earning performance fee.

Net gain above HWM ≈ 4.5% (1.10 × 0.95 = 1.045).

Performance fee on ~4.5%, not full 10%.