{"id":35546,"date":"2023-11-23T20:17:33","date_gmt":"2023-11-23T20:17:33","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=35546"},"modified":"2024-03-22T05:31:22","modified_gmt":"2024-03-22T05:31:22","slug":"monitoring-alternative-investment-programs","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/","title":{"rendered":"Monitoring Alternative Investment Programs"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/dge19wfvmlA\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe> <\/p>\n<h2>Overall Investment Program Monitoring <\/h2>\n<p>Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these. These programs are long-term commitments, so it&#8217;s crucial to continuously monitor their progress.<\/p>\n<p>Investors must ensure that their original program goals remain achievable over the investment horizon. Changing market conditions, like historically low cap rates, can impact the program&#8217;s relevance to those goals.<\/p>\n<p>Monitoring is challenging and time-consuming. Data isn&#8217;t readily available, and analyzing it requires expertise to draw meaningful comparisons and insights, a task not easily managed by those unfamiliar with the field.<\/p>\n<h2>Performance Evaluation<\/h2>\n<p>Monitoring alternative investment fund performance comes with challenges, such as benchmarking and forming relevant peer groups. Unlike traditional assets, alternatives are unique and don&#8217;t fit neatly into standardized criteria for comparisons.<\/p>\n<p>Some investors use pre-compiled benchmarks and adjust them based on similarities to the underlying investments. Others employ absolute return criteria or use spreads on equity indices. There&#8217;s also the complexity of choosing between time-weighted returns, money-weighted returns, or internal rate of return (IRR).<\/p>\n<p>Given these complexities, hiring experienced staff dedicated to monitoring and evaluation becomes important, especially for larger investments or when dealing with numerous underlying funds.<\/p>\n<h2>Monitoring the Firm and the Investment Process<\/h2>\n<p>Ongoing monitoring of an alternative investment program is essential, and whether it&#8217;s done in-house or through a specialized firm, certain critical considerations should be taken into account:<\/p>\n<ol type=\"1\">\n<li><strong>Key-Person Risk<\/strong>\n<p>Success in alternative investments often relies on key investment professionals. If these individuals leave the fund, it can impact performance. Investors should track who is making investment decisions.<\/p>\n<\/li>\n<li><strong>Alignment of Interests<\/strong>\n<p>Achieving perfect alignment between General and Limited Partners is challenging. However, open communication helps. Key questions include whether the manager has invested alongside limited partners and if there are plans for a new fund.<\/p>\n<\/li>\n<li><strong>Style Drift<\/strong>\n<p>Fund managers should stay within their areas of expertise to generate alpha. Investing in unfamiliar areas poses risks.<\/p>\n<\/li>\n<li><strong>Risk Management<\/strong>\n<p>Understanding the fund&#8217;s risk management philosophy and ensuring adherence is crucial, especially if leverage is involved.<\/p>\n<\/li>\n<li><strong>Client\/Asset Turnover<\/strong>\n<p>Large drops in clients or assets may indicate problems.<\/p>\n<\/li>\n<li><strong>Client Profile<\/strong>\n<p>Knowing about the manager&#8217;s other clients is important. Do they redeem quickly when trouble arises?<\/p>\n<\/li>\n<li><strong>Service Providers<\/strong>\n<p>Confirming third-party service providers like administrators and auditors are engaged by the fund manager is essential. Changes in service providers can signal issues.<\/p>\n<\/li>\n<\/ol>\n<p>Monitoring these aspects helps ensure the ongoing success of an alternative investment program.<\/p>\n<blockquote>\n<h2>Question<\/h2>\n<p>The outcome of an investment in alternative assets can be affected by the fund&#8217;s clients, the Limited Partners:<\/p>\n<ol type=\"A\">\n<li>False.<\/li>\n<li>True.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p><strong>The correct answer is B.<\/strong><\/p>\n<p>Clients, as Limited Partners, have the potential to impact the investment strategy. During events like the 2008 financial crisis, clients withdrawing capital from alternative investments contributed to the funds&#8217; financial challenges. While lock-up periods may impose penalties on early withdrawals, they don&#8217;t entirely prevent them. Therefore, it&#8217;s crucial to consider the behavior of other clients in a fund before making an investment decision.<\/p>\n<\/blockquote>\n<p>Reading 28: Asset Allocation to Alternative Investments<\/p>\n<p>Los 28 (h) Discuss considerations in monitoring alternative investment programs<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Overall Investment Program Monitoring Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these. These programs are long-term commitments, so it&#8217;s crucial to continuously monitor their progress. Investors must ensure that their&#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[571],"tags":[],"class_list":["post-35546","post","type-post","status-publish","format-standard","hentry","category-cfa-level-iii","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Monitoring Alternative Investment Programs - CFA, FRM, and Actuarial Exams Study Notes<\/title>\n<meta name=\"description\" content=\"Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Monitoring Alternative Investment Programs - CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"og:description\" content=\"Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/\" \/>\n<meta property=\"og:site_name\" content=\"CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2023-11-23T20:17:33+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-03-22T05:31:22+00:00\" \/>\n<meta name=\"author\" content=\"Nicolas Joyce\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Nicolas Joyce\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/\"},\"author\":{\"name\":\"Nicolas Joyce\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/#\\\/schema\\\/person\\\/393e8b0a7757cde1d197fb0c060af25f\"},\"headline\":\"Monitoring Alternative Investment Programs\",\"datePublished\":\"2023-11-23T20:17:33+00:00\",\"dateModified\":\"2024-03-22T05:31:22+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/\"},\"wordCount\":521,\"articleSection\":[\"Level III of the CFA\u00ae Program\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/\",\"url\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/\",\"name\":\"Monitoring Alternative Investment Programs - CFA, FRM, and Actuarial Exams Study Notes\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/#website\"},\"datePublished\":\"2023-11-23T20:17:33+00:00\",\"dateModified\":\"2024-03-22T05:31:22+00:00\",\"author\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/#\\\/schema\\\/person\\\/393e8b0a7757cde1d197fb0c060af25f\"},\"description\":\"Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these.\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/cfa-level-iii\\\/monitoring-alternative-investment-programs\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Monitoring Alternative Investment Programs\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/#website\",\"url\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/\",\"name\":\"CFA, FRM, and Actuarial Exams Study Notes\",\"description\":\"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/#\\\/schema\\\/person\\\/393e8b0a7757cde1d197fb0c060af25f\",\"name\":\"Nicolas Joyce\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"url\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"contentUrl\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"caption\":\"Nicolas Joyce\"},\"url\":\"https:\\\/\\\/analystprep.com\\\/study-notes\\\/author\\\/kajal\\\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/dge19wfvmlA\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"3134\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2023-11-23T20:17:33+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Monitoring Alternative Investment Programs - CFA, FRM, and Actuarial Exams Study Notes","description":"Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/","og_locale":"en_US","og_type":"article","og_title":"Monitoring Alternative Investment Programs - CFA, FRM, and Actuarial Exams Study Notes","og_description":"Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these.","og_url":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/","og_site_name":"CFA, FRM, and Actuarial Exams Study Notes","article_published_time":"2023-11-23T20:17:33+00:00","article_modified_time":"2024-03-22T05:31:22+00:00","author":"Nicolas Joyce","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Nicolas Joyce","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/"},"author":{"name":"Nicolas Joyce","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f"},"headline":"Monitoring Alternative Investment Programs","datePublished":"2023-11-23T20:17:33+00:00","dateModified":"2024-03-22T05:31:22+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/"},"wordCount":521,"articleSection":["Level III of the CFA\u00ae Program"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/","url":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/","name":"Monitoring Alternative Investment Programs - CFA, FRM, and Actuarial Exams Study Notes","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/#website"},"datePublished":"2023-11-23T20:17:33+00:00","dateModified":"2024-03-22T05:31:22+00:00","author":{"@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f"},"description":"Investors enter alternative investment programs with specific goals: risk reduction, return enhancement, income, or a mix of these.","breadcrumb":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/monitoring-alternative-investment-programs\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/study-notes\/"},{"@type":"ListItem","position":2,"name":"Monitoring Alternative Investment Programs"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/study-notes\/#website","url":"https:\/\/analystprep.com\/study-notes\/","name":"CFA, FRM, and Actuarial Exams Study Notes","description":"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f","name":"Nicolas Joyce","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","caption":"Nicolas Joyce"},"url":"https:\/\/analystprep.com\/study-notes\/author\/kajal\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/dge19wfvmlA","og_video_type":"text\/html","og_video_duration":"3134","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2023-11-23T20:17:33+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/35546","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/comments?post=35546"}],"version-history":[{"count":3,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/35546\/revisions"}],"predecessor-version":[{"id":37081,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/35546\/revisions\/37081"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/media?parent=35546"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/categories?post=35546"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/tags?post=35546"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}