Preface xvii Acknowledgments xxi About the Authors xxiii PART 1 Asset Allocation and Institutional Investors CHAPTER 1 Asset Allocation Processes and the Mean-Variance Model 3 1.1 Importance of Asset Allocation 3 1.2 The Five Steps of the Asset Allocation Process 6 1.3 Asset Owners 7 1.4 Objectives and Constraints 9 1.5 Investment Policy Objectives 9 1.6 Investment Policy Constraints 17 1.7 Preparing an Investment Policy Statement 18 1.
8 Implementation 22 1.9 Conclusion 33 Notes 34 References 34 CHAPTER 2 Tactical Asset Allocation, Mean-Variance Extensions, Risk Budgeting, Risk Parity, and Factor Investing 35 2.1 Tactical Asset Allocation 35 2.2 Extensions to the Mean-Variance Approach 45 2.3 Risk Budgeting 50 2.4 Risk Parity 55 2.5 Factor Investing 62 2.6 Conclusion 68 Notes 69 References 69 CHAPTER 3 The Endowment Model 71 3.
1 Defining Endowments and Foundations 71 3.2 Intergenerational Equity, Inflation, and Spending Challenges 74 3.3 The Endowment Model 76 3.4 Why Might Large Endowments Outperform? 78 3.5 Risks of the Endowment Model 84 3.6 Conclusion 96 Note 96 References 96 CHAPTER 4 Pension Fund Portfolio Management 99 4.1 Development,Motivations, and Types of Pension Plans 99 4.2 Risk Tolerance and Asset Allocation 101 4.
3 Defined Benefit Plans 105 4.4 Governmental Social Security Plans 113 4.5 Contrasting Defined Benefit and Contribution Plans 114 4.6 Annuities for Retirement Income 117 4.7 Conclusion 122 Notes 122 References 122 CHAPTER 5 Sovereign Wealth Funds 125 5.1 Sources of Sovereign Wealth 125 5.2 Four Types of Sovereign Wealth Funds 128 5.3 Establishment and Management of Sovereign Wealth Funds 131 5.
4 Emergence of Sovereign Wealth Funds 134 5.5 Governance and Political Risks of SWFs 136 5.6 Analysis of Three Sovereign Wealth Funds 138 5.7 Conclusion 141 Notes 142 References 142 CHAPTER 6 The Family Office Model 145 6.1 Identifying Family Offices 145 6.2 Goals, Benefits, and Business Models of Family Offices 145 6.3 Family Office Goals by Generations 150 6.4 Macroeconomic Exposures of Family Offices 155 6.
5 Income Taxes of Family Offices 157 6.6 Lifestyle Assets of Family Offices 160 6.7 Family Office Governance 164 6.8 Charity, Philanthropy, and Impact Investing 167 6.9 Ten Competitive Advantages of Family Offices 170 6.10 Conclusion 172 Notes 172 References 173 PART 2 Private Equity CHAPTER 7 Private Equity Market Structure 177 7.1 Main Strategies of Private Equity Investment 177 7.2 Main Differences between Venture Capital and Buyout 178 7.
3 PE Funds as Intermediaries 181 7.4 PE Funds of Funds as Intermediaries 184 7.5 The Relationship Life Cycle between LPs and GPs 187 7.6 Limited Partnership Key Features 190 7.7 Co-Investments 198 7.8 Conclusion 202 Notes 202 References 203 CHAPTER 8 Private Equity Benchmarking 205 8.1 The Valuation of PE Assets 206 8.2 Measuring Performance of PE Funds 206 8.
3 Benchmark Types 212 8.4 Asset-Based Benchmarks 213 8.5 Peer Groups 215 8.6 What Is an Appropriate Benchmark? 218 8.7 Example for Benchmarking PE Funds 220 8.8 Portfolio of PE Funds 226 8.9 Conclusion 231 Notes 232 References 232 CHAPTER 9 Fund Manager Selection and Monitoring 235 9.1 Performance Persistence 235 9.
2 Manager Selection and Deal Sourcing 241 9.3 Decision-Making and Commitment 244 9.4 Principles of Fund Monitoring 245 9.5 Monitoring Objectives 246 9.6 Information Gathering and Monitoring 248 9.7 Actions Resulting from Monitoring 251 9.8 The Secondary Market 253 9.9 Conclusion 259 Notes 260 References 262 CHAPTER 10 Private Equity Operational Due Diligence 265 10.
1 The Scope and Importance of Operational Due Diligence 265 10.2 Eight Core Elements of the Operational Due Diligence Process 268 10.3 Private Equity Operational Due Diligence Document Collection Process 269 10.4 Analyzing Private Equity Legal Documentation during Operational Due Diligence 272 10.5 Operational Due Diligence beyond Legal Document Analysis 278 10.6 On-Site Manager Visits 282 10.7 Evaluating Meta Risk 284 10.8 Fund Service Provider Review and Confirmation 285 10.
9 Ongoing Private Equity Monitoring Considerations 286 10.10 Conclusion 287 Notes 288 References and Further Readings 288 CHAPTER 11 Private Equity Investment Process and Portfolio Management 289 11.1 Investment Process 290 11.2 Private Equity Portfolio: Design 293 11.3 Private Equity Portfolio: Construction 297 11.4 Risk-Return Management 300 11.5 Conclusion 306 Notes 307 References 308 CHAPTER 12 Measuring Private Equity Risk 309 12.1 Four Significant Risks of Private Equity 309 12.
2 Modeling Private Equity 311 12.3 What Is the Value of a Private Equity Asset? 313 12.4 Applying the VaR Concept to Private Equity 315 12.5 Calculating VaR Based on Cash Flow at Risk 315 12.6 Conclusion 320 Notes 321 References 321 CHAPTER 13 The Management of Liquidity 323 13.1 Identifying Illiquidity and Managing Cash Flows 323 13.2 Private Equity Cash Flow Schedules 327 13.3 Five Sources of Liquidity 328 13.
4 Investment Strategies for Undrawn Capital 330 13.5 Modeling Cash Flow Projections 330 13.6 Three Approaches to Forming Model Projections 331 13.7 Overcommitment 337 13.8 Conclusion 339 Notes 340 References 340 PART 3 Real Assets CHAPTER 14 Real Estate as an Investment 343 14.1 Attributes of Real Estate 343 14.2 Asset Allocation 345 14.3 Categories of Real Estate 347 14.
4 Return Drivers of Real Estate 352 14.5 The Four-Quadrant Model 354 14.6 Conclusion 358 Note 358 References 358 CHAPTER 15 Real Estate Indices and Unsmoothing Techniques 361 15.1 Smoothed Pricing 362 15.2 Models of Price and Return Smoothing 365 15.3 Unsmoothing a Price or Return Series 368 15.4 An Illustration of Unsmoothing 372 15.5 Noisy Pricing 378 15.
6 Appraisal-Based Real Estate Indexes 379 15.7 Transaction-Based Indices (Repeat-Sales and Hedonic) 384 15.8 Description of Major Real Estate Indices 390 15.9 Real Estate Indices Performance 393 15.10 Conclusion 398 Notes 398 References 399 CHAPTER 16 Investment Styles, Portfolio Allocation, and Real Estate Derivatives 401 16.1 Defining the Three NCREIF Real Estate Styles 402 16.2 Differentiating Styles with Eight Attributes 404 16.3 Three Purposes of Real Estate Style Analysis 404 16.
4 Real Estate Style Boxes 407 16.5 Cap Rates and Expected Returns 408 16.6 Developing Risk and Return Expectations with Styles 409 16.7 Characteristics of Real Estate Derivatives 415 16.8 Types of Real Estate Derivatives and Indices 417 16.9 Conclusion 421 References 421 CHAPTER 17 Listed versus Unlisted Real Estate Investments 423 17.1 Unlisted Real Estate Funds 423 17.2 Listed Real Estate Funds 427 17.
3 Market-Based versus Appraisal-Based Returns 435 17.4 Arbitrage, Liquidity, and Segmentation 439 17.5 Conclusion 448 Note 449 References 449 CHAPTER 18 International Real Estate Investments 451 18.1 Overview of International Real Estate Investing 451 18.2 Opportunities in International Real Estate Investing 453 18.3 Challenges to International Real Estate Investing 462 18.4 Establishing a Global Real Estate Equity Investment Program 470 18.5 Conclusion 476 Note 476 References 477 CHAPTER 19 Infrastructure as an Investment 479 19.
1 Infrastructure Assets 479 19.2 Stage, Location, and Sector of Infrastructure 483 19.3 Twelve Attributes of Infrastructure as Defensive Investments 486 19.4 Accessing Infrastructure Investment Opportunities 489 19.5 Classifying Infrastructure Fund Strategies 493 19.6 Comparison of Infrastructure with Other Assets 496 19.7 Public-Private Partnerships 497 19.8 Infrastructure Regulation and Public Policy 499 19.
9 Infrastructure Historical Performance 499 19.10 Conclusion 501 References 502 CHAPTER 20 Farmland and Timber Investments 503 20.1 Motivations for and Characteristics of Farmland Investment 503 20.2 Global Demand for Agricultural Products 505 20.3 Accessing Agricultural Returns 508 20.4 Understanding the Returns to Farmland 514 20.5 Investing in Agricultural Infrastructure 520 20.6 Global Investing in Timberland 522 20.
7 Farmland and Timber Investments Compared to Other Real Assets 525 20.8 Key Points 528 20.9 Conclusion 529 Notes 529 References 529 CHAPTER 21 Investing in Intellectual Property 533 21.1 Characteristics of Intellectual Property 533 21.2 Film Production and Distribution 534 21.3 Visual Works of Art 541 21.4 R&D and Patents 546 21.5.