Sahil Alvi

Tag: Capital Allocation

Efficient Markets Do Not Exist: A Primer on Perpetual Market Disequilibrium Hypothesis

by sahilalvi on Aug.07, 2010, under Economics, Finance

“Look thoroughly into matters, and do not let the peculiar quality or intrinsic value of anything escape you.” – Marcus Aurelius

What is Equilibrium?

According to the definition: Equilibrium is the condition of a system in which competing influences are balanced.

In Physical Sciences, the hypothetical interactions of constants and variables can be studied, proved or refuted in a controlled and/or closed system with a high degree of certainty that the expected outcome is uncontaminated by exogenous factors.

In Economics, however, one can argue that any theoretical proof and subsequent practical application of that economic theory should be able to withstand the rigors of operating in a system that is open, porous and influenced by both endogenous and exogenous factors. In essence, therefore, discussing the concept of equilibrium within the confines of a closed system derives limited value for economists, financiers, traders and other market participants as a closed system does not exist in the real, messy, dynamic world of trading.

In this context, may I propose the following hypothesis provisionally entitled: Perpetual Market Disequilibrium Hypothesis.

An open system such as a market — that is continuously and continually dynamic due to the individual influence and collective interaction of an inexhaustible array of endogenous and exogenous factors — cannot attain a state of “balance” of “competing influences” even for the most fleeting moment in time.

Due to the perpetual motion generated by information asymmetries, human emotions, investor sentiments, social perceptions, cognitive limitations, data inaccuracies, economic cycles, demographic transformations, systemic inefficiencies, structural problems, competing interests, global capital flows, global trade, policy shifts, regulatory loopholes, political expediencies, central bank interventions, etc. among market participants in an open system, the market is influenced by an inexhaustible number of variables the interactive impact of which is constantly changing and morphing the state of the markets in profound, imperfect, (and only partly fathomable) ways.

Hence, markets are in a perpetual state of disequilibrium and inefficiency.

Capital allocation, therefore, is also in a perpetual state of disequilibrium and inefficiency.

In philosophical terms, equilibrium or market efficiency is like perfection. It can be aspired for, but never attained. It is imaginary, not real.

In Classical Economic Theory, a “Dynamic Equilibrium” or market efficiency is a state when demand and supply intersect (and are in balance) with a resultant “equilibrium” asset price for that point in time.

The definition of “Static Equilibrium” in Physics is: A system of particles is in static equilibrium when all the particles of the system are at rest and the total force on each particle is permanently zero.

The definition of “Dynamic Equilibrium” in Physics is: The state of a body or physical system at rest or in un-accelerated motion in which the resultant of all forces acting on it is zero and the sum of all torques about any axis is zero.

In the study of markets, however, neither of the following conditions is true:

1. bodies or particles (market participants) are at rest,

2. total force (capital) on each body particle (market participant) is zero.

Furthermore, if we apply Burton Malkiel’s “Random Walk Theory” to the above definitions of “Equilibrium,” then particles (market participants) are not at rest but in a random “Brownian Motion.”

Equilibrium v/s Mean Reversion:

As discussed above, there is no universal, constant and determinate equilibrium price point from which the value of an asset can start, and to which it can revert, without consideration given to the length of time involved in the analysis. What is popularly referred to as Market Value (price) or the market equilibrium point, within a certain snapshot in time, is merely where demand and supply met for that particular instance in the price journey of an asset.  Obviously, Time is the independent variable in the concept of equilibrium. Furthermore, as can be intuitively understood, an accurate identification of a so-called “equilibrium point” over a significant period of time would also require adjusting for inflation.

This, however, is where economists and other market participants begin to inaccurately mingle the notion of equilibrium or market efficiency with the concept of “mean reversion.” Conventionally, in Economics, the concept of equilibrium has been used mistakenly and interchangeably with “mean reversion.” The two concepts, however, are distinct.

Most asset prices (Market Values) can and do depict normal or “bell curve” distributions. Over a sufficiently long period of time with a sufficiently large number of inflation-adjusted price points, one would find that asset values do fall within a certain normal distribution, say, a 95% confidence interval. One can, in fact, isolate a “mean reversion” data point across a statistically significant number of data points over a pre-determined length of time for virtually all asset classes. This data point is, in certain circles, misunderstood as the “equilibrium price point” for a particular instance in time but it is not. By its very definition, such a data point is a “mean” or “average” of a collection of data points rather than being a solitary data point representing a moment when demand and supply intersected but were not necessarily in balance, i.e. so-called “equilibrium” or “market efficiency.”

The theoretical construct of an “equilibrium point” is that it is a singular and absolute data point where, in context of Economics for example, supply meets demand at a given instance in time. The theoretical construct of a “mean reversion point” is that it is an average of a collection of data points.

The “mean reversion” data point is misunderstood as an “equilibrium” price point within the relative confines of the data set identified just for a specified period of time. As the length of time under consideration changes, so does the data set and consequently, the “mean reversion” point. Therefore, even in the evolution of the price of a commodity or security, the “mean reversion” point is never a constant as it changes with the change in the time-frame under consideration.

Given the resolutely ephemeral and perpetually evolving nature of markets, equilibrium does not exist in absolute terms and it is misunderstood sometimes as “Mean Reversion” even in time-constrained, relative terms.

Intrinsic Value v/s Market Value (Price):

The other view one can take is that every price point at which a transaction is consummated is an equilibrium point for that fleeting moment till the next transaction ushers in the next equilibrium point supplanting the previous one, and so goes the story ad infinitum.

What we have is an all or nothing proposition. Either one can assert that there are as many equilibrium points as there are instantaneous transactions passing through a market (an open system). Alternatively, one can state there aren’t any equilibrium points because the market is constantly in a state of flux – either moving upwards or downwards due to the innumerable factors impacting it within infinitesimal segments of time.

The challenge with embracing the idea that there are as many equilibrium points as there are transactions, is that markets are inefficient at any given point in time. The price at which a transaction takes place is more a commercial compromise and less a true representation of the Intrinsic Value of an asset. In fact, the demand-supply dynamic is not necessarily an accurate or even fair determinant of an asset’s value. Demand-supply intersection is merely the most widely acceptable yardstick to ascertain the Market Value (price) (rather than Intrinsic Value) of an asset.

One may wonder: if not the demand-supply dynamic, then what is a better and more appropriate determinant of Intrinsic Values of assets?

As Marcus Aurelius says:“…do not let the peculiar quality or intrinsic value of anything escape you.”

The challenge of calculating Intrinsic Value is daunting because the notion of “mark-to-market” or reference points or relative prices is discarded in favor of ascertaining the Intrinsic Value of a particular asset to a specific buyer at a given point in time – notwithstanding how much Market Value (price) the seller or the other potential buyers are placing on that particular asset at that point in time. The ability to value (and price) assets based on the Intrinsic Value of the asset to the buyer is inherently a subjective process.  Each valuer would arrive at different valuation figures despite using similar valuation techniques. Not to mention, each buyer has a different motivation and varying degrees of intensity for wanting to purchase the same asset at any given point in time.

For example, at a certain price point and time, a long-only value investor may not be as motivated to purchase the rising stock of Company A as the short-seller intent on covering her/his short bets on the same equity versus a momentum trader looking to ride the rising wave of the same company’s stock.

The proposition of purchasing an asset unhinged from its Market Value, i.e. price (which is largely predicated on the underlying demand-supply dynamic which in turn is based on a wide variety of data) can be a high-risk, high-reward proposition. Investment decisions made by “contrarian” (particularly, value investors or short-sellers) are often driven significantly by this “Intrinsic Value” ethos of investing where they have to trust their independent judgment about the “Intrinsic” or “Fundamental” value of an asset in the face of “Market Value” data that may vehemently negate their investment thesis. A contrarian investor has to take a bold, “against-the-grain” decision on determining the Intrinsic Value of an asset that may be mis-priced by a majority of the market participants either over or under the price band that represents the asset’s true “Intrinsic Value.”

The key distinction to be mindful of is the difference between Intrinsic Value versus Market Value (price) of an asset.

Market Value (Price) of an asset is determined at any given instance by market participants based on popular, realistic (not completely real) or distorted manifestations of the demand-supply dynamic. Intrinsic Value — within the context of Economics — can be defined by the utility that an asset provides to the user, owner, buyer or seller of that asset. The utility that is derived from a certain asset by a user, owner, buyer or seller varies from one to the next in a specific moment in time. The utility derived from a certain asset by the same user, owner, buyer or seller also varies in different moments in time. Hence, Intrinsic Value is a relative concept. Intrinsic Value is relative in terms of who is valuing an asset and it is relative in terms of when the asset is being valued. Each user, owner, buyer or seller is willing to forgo or sacrifice different units of work, i.e. money to procure the same asset under consideration at different times.

Market Value, on the other hand, is essentially the value (price) placed by the highest bidder for a certain asset under consideration based on all the available information available to him/her at that point in time. Hence, Market Value (Price) at any given moment in time is absolute and concrete. Intrinsic value — contrary to popular dogma — at any given moment in time is relative and conceptual (even elusive).

The difference between the Market Value (Price) and the Intrinsic Value of a particular asset is where the “Value Gap” lies. It is this value gap that can be exploited by the savvy investor to fulfill the profit motive. The skill, experience and intelligence of the investor comes into play in ascertaining an appropriate Intrinsic Value and placing an advantageous Market Value to procure the asset such that it beats other market participants before the Value Gap between Intrinsic Value and Market Value gets filled up by other investors who later grasp the extent of the market disequilibrium or Value Gap and act on it.

Sidenote: On a philosophical level, due to its relative and variable nature, Intrinsic Value is really not all that intrinsic afterall. In fact, it is extrinsic — as the value placed on an asset is dependent on the valuer of the asset and not dependent on the asset itself. Of course, this assertion opens up a whole new debate of whether Intrinsic Value truly exists and what is the distinction between Intrinsic Value and Extrinsic Value? Perhaps, such a discussion overturns over two thousand years of philosophical speculation from the days of ancient Greek philosophers such as Socrates, Plato, Aristotle, and Epicurus to more recent thinkers such as John Stuart Mill, Henry Sidgwick and William Frankena. It is a discussion suitable for another more philosophically-oriented piece of work.

Even within the confines of the above definition, Intrinsic Value can be relative as different valuers would value the same company’s plants, machinery, real estate, intellectual property at different price “marks” and hence again, Intrinsic Value is really more extrinsic, i.e. dependent on the subject (valuer) and not on the object (asset).

The Perpetual “Tom and Jerry” Game – In Markets, present (Market Value) is the past; future (Intrinsic Value) is the present:

Now, let us also look at another critical idea presented in the Efficient Markets Hypothesis: The price of an asset (security) at any given point in time has all of the information about that asset priced into it already.

Au contraire, if anything, the Market Value (price) of an asset – which is based on an aggregate mix of data, perceptions, opinions, judgments, rumors (Market Information) of the investment community follows Intrinsic Value of that asset. In other words, the ability of certain investors to profit from market disequilibria or inefficiencies clearly indicates a perpetual “cat and mouse” or “Tom and Jerry” game. Intrinsic Value is the Mouse (Jerry) after whom Market Value (Price) – the cat (Tom) is perpetually after. To extend the analogy – the distance between Jerry’s tail and Tom’s whiskers is the difference between “Intrinsic Values” and “Market Values.” This distance is the profit reaped by the agile and perceptive investors in this most complex, fascinating and perpetual cat and mouse game.

Hence, Market Values lag Intrinsic Values. The corollary of this assertion is: At any given point in time, markets do not have all of the information to arrive at the Intrinsic Value of an asset and hence at that point in time, markets are in a state of disequilibria. They always are. In a time series, at t-0, market perception determines the Market Value-0 ($100) of an asset but the Intrinsic Value of that asset is already at Intrinsic Value-1 ($120). Then at time t-1, market perception catches up and ascribes Market Value-1 ($120) to that asset. Meanwhile, here at that same instance t-1, Intrinsic Value of that asset has already bounced higher to $150. By the time the broad market catches up, perhaps, based on certain adverse fundamentals, the Intrinsic Value of the asset has now halved to $75. Meanwhile, Mr. Market is still celebrating the past at the $150 mark as if it were the present. Of course, Mr. Market does not know any better.

As the legendary ice hockey player Wayne Gretzky famously quoted: “I skate to where the puck is going to be, not where it has been.”

Intrinsic Values of assets do the same.

And so goes the story of Market Value” chasing “Intrinsic Value” in perpetuity.

Whether it is through fundamental analysis or technical analysis or quantitative analysis or macro-analysis or some combination thereof, the few savvy investors who profit from assessing the Intrinsic Value of an asset – before the rest of the market participants catch up on the same or similar assessment – are the ones who are celebrated amongst the investment community as the ones possessing that “Alpha” factor.

What else would explain the profits reaped by legions of investors trading various assets on a daily, weekly, monthly, year-in-year out basis?

How is it that world-renowned investors such as Warren Buffett (Berkshire Hathaway), George Soros (Soros Fund Management), Jim Simons (Renaissance Technologies), Peter Lynch (Fidelity Investments), Bill Gross (PIMCO), Jack Bogle (Vanguard), Thomas Rowe Price, Jr. (T. Rowe Price) John Templeton (Templeton) among countless other “average Joe’s” have consistently not only generated profits in various capital markets – but have out-performed the markets by a wide margin – often uncorrelated with the larger economic cycles?

It is quite simply because they, undoubtedly, possess “Alpha.” They possess the much vaunted skill and ability to evaluate and perceive the “Value Gap” between the “Market Value” and the “Intrinsic Value” of an asset before the larger investing community — and these celebrated students of the market have the ability and gumption to act on it in a timely, calculated and effective manner.

The famed Soros trade against the Pound Sterling in 1992, or John Paulson’s massive short bet on the US housing market (and more particularly) the credit-linked derivative instruments in 2007, or Prince Alwaleed’s investment in the struggling Citigroup in 1991, or Jim Chanos’ short bet against Enron in 2001 – are all examples of high-profile investments where a savvy and decisive investor perceived a significant Value Gap prior to the majority of the market participants and made bets on the Intrinsic Value of those investments – only to see their bets paid off handsomely when the rest of the market finally closed the Value Gap between yesterday’s Intrinsic Value of the asset and today’s Market Value. In an instant of course, by the time the markets caught on to today’s Market Value “marks,” the Intrinsic Values of those assets had already moved on allowing a new set of contrarian investors to assess the new Intrinsic Values of those very assets and create new “marks” for what would be the Market Values of those assets at a later date.

This ability to successfully chase down Intrinsic Values of assets can be defined as the much sought after “Alpha” – the factor that distinguishes and explains the ability of certain investment managers to outperform the markets for most of the time.

Quantitative strategies pursued by Hedge Funds and proprietary trading desks of Investment Banks and other types of institutional investors have only been able to provide “Alpha” for a certain periods of time and to varying degrees of success due to a few reasons (elaborate later):

  • Organic v/s Inorganic Investment Management: The structural rigidities and limitations of inorganic, logical, rules-based, linear, pattern-driven, algorithmic systems trying to model and out-smart the organic, often illogical, wild, non-linear, disobedient markets creates an environment of great disequilibrium in markets – especially as certain markets have come to be dominated by system-generated institutional capital flows setting the Market Value “marks” of certain assets;
  • “Value Gap” Crowding Out: The computer-driven, quantitative strategies in pursuit of bringing the markets back from Disequilibria and close the Value Gap actually end up widening the Value Gap by crowding out the market by their large positions – especially when “Stop Loss” and other risk management triggers go off in their highly leveraged positions. In effect, similar quantitative, system-generated hedging “Alpha” strategies and risk management strategies at different institutional investors ends up crowding out the market for a given asset – thereby amplifying and magnifying the very Value Gaps or market inefficiencies or disequilibria they aimed to erase in the first place.

Therefore, human “Alpha” factor or human judgment will always remain the most precious resource in markets laden with, what Prof. Robert Shiller calls, “animal spirits.”

Effectively, both the Intrinsic Value and the Market Value of an asset are moving targets. Both, at the end of the day, are subjective. Both require a subject (valuer) to assess and ascribe an inherently subjective value to the asset (object) under consideration. Both, the Intrinsic and Market Values of an asset, do not have all of the information priced into the asset’s spot of futures price at any given point in time. It is just that Intrinsic Value P-1 is “closer” to the Fair Value of the asset at time t-0 but majority of the market perceives it to be Market Value P-0.

Ultimately, equilibrium or market efficiency is constrained to describing a momentary, ephemeral state (static or dynamic) for a market or an individual asset whose value (as stated above) is inherently, continuously and continually changing. Even in those conditions, however, equilibrium or market efficiency remains an imaginary state; a chimera.

It follows therefore, Equilibrium or Market Efficiency — in the context of Economics — does not even exist.

Application of “Perpetual Market Disequilibrium Theory” and “Value Gap Analysis”:

The concept of “equilibrium” is a cornerstone of Eugene Fama’s Efficient Market Hypothesis. As we have established above, neither is the market capable of being efficient, nor does that ephemeral moment called equilibrium ever arise. If Fama meant to use the “mean reversal point” in his famed capital markets hypothesis, he should have stated it as such — as we have also established that an “equilibrium point” is different from a “mean reversal point.”

The practical application arising from the realization that “Market Equilibrium Does Not Exist and Markets are constantly in a state of disequilibria” is:

As discussed above, the individual impact and collective interaction of numerous endogenous and exogenous factors (both facts and opinions) will ensure that, at any given point in time, markets remain in a state of imperfect information as they relate to the price of any given asset. The price of a given asset has built-in to it a variety of accurate and inaccurate perceptions of its value or worth. Mis-allocation of capital and asset bubbles, therefore, are bound to continue forming due to this perpetual state of imperfections or disequilibria in markets. Momentum investing is a phenomenon that speaks exactly to this kind of disequilibria where routinely markets over-shoot on the upside or downside from a range of price that can be deemed to represent a fair and reasonable estimation of the underlying value of an asset based on fundamentals.

With the advantage of ever greater levels of sophistication in data gathering and analysis, markets can aspire and work towards reducing the extent of market disequilibria (volatility) or the “Value Gap” between Intrinsic Value and Market Value at any given point in time. On the other hand, the very ability to share data instantaneously and ubiquitously also creates an enabling environment where both — fact and fiction (rumors, opinions, speculations, tactical misinformation, etc.) can spread equally effectively thereby magnifying and amplifying the interpolated impact of fact and fiction on the price of an asset.

Indeed, it is also this very perpetual disequilibria that contributes to the opportunities for market participants to wrench out inefficiencies and profit from them on an ongoing basis.

A practical application of the Perpetual Market Disequilibrium Hypothesis is that, for a savvy investor, there are always opportunities to exploit the Disequilibrium or Value Gap for an asset at any given point in time. It doesn’t matter whether the market values (prices) or volumes are on their way up or down. In fact, from a value investing perspective, there is potentially a greater number of opportunities during a “down” market for an investor to enter the market and exploit the “Value Gap.”

For example, as illustrated in the chart below showing Goldman Sachs’ two-year stock performance, just as investors started to move to the sidelines in April, 2009, i.e. trading volumes began to get lower, Goldman’s stock began to climb to reach its two-year highs in September, 2009 when trading volumes were at one of their lowest levels for that two-year period.

Goldman Sachs Stock Performance

The strong negative correlation between prices and volumes depicts the “Value Gap” phenomenon in all the more pronounced and compelling manner because Goldman’s stock performance in the chart below is coming off the lowest point of the biggest financial crisis since The Great Depression. For nimble, contrarian investors with an eye for identifying the Value Gap  between the Intrinsic Value and Market Value of an asset or a security, Goldman presented an extraordinarily profitable and uncommon buying opportunity during this period of great uncertainty and disequilibria. Given the trading volumes during those four quarters (April, 2009 to March, 2010), there was less competition to purchase the stock as it began its long climb, and there was greater upside potential for those investors who recognized and seized the Value Gap as the stock went up. The key was to remain patient and confident about one’s judgment on the Value Gap. Ultimately, the application of the Value Gap concept is not ideally suited for rapid, short-term or intra-day trades. It is better suited for medium-to-long term trades where market perception or “technicals” catch up with the “fundamentals” of the asset under consideration.

Conclusion: Due to the complex dynamic of a constantly, endogenously, and exogenously changing demand-supply system, markets are never in a state of equilibrium. To state that the concept of equilibrium exists, therefore, can be arbitrary, subjective, and plain inaccurate.

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Gateway Markets: The Great Long-term Real Estate Play

by sahilalvi on Jul.14, 2010, under Economics, Finance

Post-Global Recession,

“Gateway” or “Spiky” markets are likely to lead the way out for the Real Estate asset class

A Spiky WorldInvestment Context & Opportunity: Tier-1 “Gateway” Cities

Savvy, intrepid, independent-minded — particularly, contrarian — investors ought to pay close attention to real estate in global “Gateway” cities.

Gateway cities, or “Spiky” markets, can be defined as a set of global Tier-1 cities to which Prof. Richard Florida’s “Creative Class,” or even roughly, Prof. Anna Lee Saxenian’s “New Argonauts” flock.

The following metropolitan areas would constitute Tier-1 Gateway markets: New York, London, Tokyo, Bay Area (San Francisco and Palo Alto in particular), L.A./Orange County, Sydney, Miami, Toronto, Vancouver, Bombay, Rome, Munich, Paris, Moscow, Dubai, Istanbul, Sao Paulo, Shanghai, Singapore, Hong Kong.

Many of these Gateway metropolitan areas’ high-end real estate is presently under-valued by anywhere from 30 to 60 per cent vis-a-vis their historic inflation-adjusted peaks. With values of high-end real estate inventory at such dramatically low prices across many of these Gateway markets, now is the time to take some bold investment decisions.

Due to continued urbanization, these cities are on their way to transforming themselves into megapolises over the next half a decade or so. Many of these Gateway markets already enjoy megapolis status. Due to the natural limits to their expansion and the constant real estate supply-demand “cat and mouse” game, real estate prices in these markets can be expected to climb along a secular trajectory over the long-term — particularly for high-end real estate. Even in the short-to-medium term, however, these markets are likely to rebound and outperform real estate markets in smaller Tier-2 cities.

Furthermore, “network effects” or “multiplier effects” will continue to lead to a disproportionate increase in productivity in these cities compared with their Tier-2 Gateway peers (identified below). As the world comes out of the “Great Recession,” the productivity enhancements in these Tier-1 Gateway cities will get priced into the real estate asset values before (and higher than) they would in other smaller metropolitan markets. Like people, capital will be more fluid through these highly “porous” global cities. Hence, real estate assets in these Tier-1 cities will be more liquid than assets in other Tier-2 cities.

Starting now, Hedge Funds and long-only PE firms can take advantage of these opportunities by investing in landmark Grade A office space, 5-star hotels, upscale retail destinations and even marquee residential property.

Obviously, Gateway cities in certain emerging markets like Shanghai and Bombay are an exception as the real estate asset values in those markets have reached, and even exceeded, their 2008 peaks in certain instances. Infact, a credible argument can be made that high-end real estate prices are inflated in some of those emerging markets — particularly in Shanghai and other major Chinese metropolitan markets like Beijing, Guangzhou, Shenzhen, Tianjin, Hong Kong, etc.

Arguably, even “over-priced” real estate assets in emerging markets are likely to prove to be sound investments over the next half a decade and beyond. No rocket science. It is simply the crushing force of demographics that will raise price levels for virtually all forms of real estate in these centers of economic and cultural activity.

Furthermore, a small portion of this strategy could be devoted to specialized REIT’s with significant exposure to the above mentioned geographies.

A smaller amount of capital can also be devoted to higher beta, Tier-2 pool of global “Gateway” cities as well.

These would include: Chicago, Boston, Atlanta, Montreal, Rio De Janeiro, Buenos Aires, Cape Town, Melbourne, Bangalore, New Delhi, Milan, Madrid, Frankfurt, Amsterdam, Copenhagen, Stockholm, Brussels, Dublin, Vienna, Prague, Seoul, Beijing, Kuala Lumpur, Abu Dhabi, Cairo,  among others.

Investment Entry Horizon:

Next 6 to 18 months would be the “sweet spot” for picking up the choicest assets without contending with bruising competition.

Investment Exit Horizon:

Next 36 to 60 months — depending on the Gateway city in question — would allow for an optimal period for healthy returns on exits.

Expected Return:

10% to 20% annualized IRR (depending on which particular market is considered).

Capital Allocation:

Roughly 5% of a diversified Hedge Fund’s total assets under management (AUM) could be a good place to start. Given the scale and scope of this investment strategy, it can absorb as much as 10% to 15% of a fund’s portfolio as the geographic diversity (North & South America, Western Europe, Russia, South Asia, Middle East, and East Asia) asset variety (Hotels, Offices, Malls, and Residential real estate) provides a natural hedge to a portfolio designed with such an exposure.

Fresh capital infusions from a fund’s limited partners would allow a fully or mostly-invested fund to expand its asset base without compromising on its investment philosophy, expected returns, risk management controls, or capital allocation/portfolio diversification principles.

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