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Alternative InvestmentsModule 1 of 3

Alternative Investment Features, Methods, and Structures

5

Concepts

3

Formulas

1

Decisions

3

Quiz Questions

Key Concepts

5 concepts covered in this module.

Alt Investment Categories

Private capital (PE, VC), Real assets (real estate, infrastructure, natural resources), Hedge funds, Digital assets.

Investment Methods

Fund investment (LP in fund), Co-investment (alongside GP), Direct investment (own the asset directly).

Limited Partnership Structure

GP: manages fund, has unlimited liability. LPs: passive investors, limited liability. Management fee + performance fee.

Compensation: 2 and 20

Typical: 2% management fee (on committed/invested capital) + 20% performance fee (carried interest) above hurdle rate.

Key Features

Illiquidity, long time horizons, complex strategies, less regulation, higher fees, potentially higher returns.

Formulas

3 essential formulas for this module.

Management Fee

Mgmt Fee = Fee Rate × AUM (or committed capital)

Where: Typically 1-2% annually

Performance Fee

Perf Fee = Incentive Rate × max(0, Return - Hurdle Rate)

Where: Typically 20% above hurdle

Net Return to LP

Net Return = Gross Return - Mgmt Fee - Performance Fee

Where: What the investor actually earns

Decision Frameworks

1 decision frameworks to guide your analysis.

Fund vs Co-investment vs Direct?

  • Fund: diversification, professional management, access to deals
  • Co-investment: lower fees, more control, specific deal selection
  • Direct: full control, no GP fees, requires significant expertise

Mind Map

Visual overview of how concepts connect in this module.

Alt Investments
Categories
Private equity/VC
Real estate
Infrastructure
Natural resources
Hedge funds
Digital assets
Methods
Fund investment
Co-investment
Direct investment
Structure
LP/GP structure
Committed capital
Capital calls
Distributions
Fees
Management fee (2%)
Performance fee (20%)
Hurdle rate
High-water mark

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Next Module

Private Capital: Equity and Debt