The Journal of Alternative Investments

The Golden Rule of Investing

Pim van Vliet, Harald Lohre — Tue, 23 Jan 2024 00:00:00 -0800

While gold is a volatile asset, it is often considered a safe haven that offers protection during bear markets. We study this safe haven hypothesis by analyzing a strategic allocation to gold for a loss averse investor with a 1-year evaluation horizon. A modest allocation to gold indeed helps to reduce downside risk of traditional stock-bond allocations, yet such risk reduction comes at the cost of return. Conversely, low-volatility stocks are more effective in reducing losses without giving up returns. As a result, a stock-bond-gold allocation considerably benefits from embracing low-volatility stocks, and allows for increasing the equity allocation at the expense of bonds. Notably, the effectiveness of this defensive multi-asset portfolio increases with the investment horizon.

Do Crypto hedge funds time Bitcoin market?

Tianyi Ma — Tue, 23 Jan 2024 00:00:00 -0800

Cryptocurrency (Crypto) hedge funds are known to operate in the Crypto market, especially in the Bitcoin market. This paper examines whether Crypto hedge funds time the Bitcoin market to profit from the Crypto market. We use a market jointly timing model to assess the Bitcoin market return and volatility timing skills of Crypto hedge fund managers. Our analysis shows that younger funds with shorter lock-up periods tend to have stronger Bitcoin market return timing skills. Moreover, funds with lower redemption periods tend to exhibit stronger Bitcoin market volatility timing skills. We also observe that Crypto hedge funds demonstrate stronger Bitcoin market timing skills during market downturns, likely due to Bitcoin as a safe-haven asset in contrast to traditional stock market investments. Our findings are important for private investors who are considering Crypto hedge funds as an alternative investment.

TechRank

Tue, 23 Jan 2024 00:00:00 -0800

We introduce TechRank, a recursive algorithm based on a bi-partite graph with weighted nodes. We develop TechRank to link companies and technologies based on the method of reflection. We allow the algorithm to incorporate exogenous variables that reflect an investor’s preferences. We calibrate the algorithm in the cybersecurity sector. First, our results help estimate each entity’s influence and explain companies’ and technologies’ ranking. Second, they provide investors with an optimal quantitative ranking of technologies and, thus, help them design their optimal portfolio. We propose this method as an alternative to traditional portfolio management and, in the case of private equity investments, as a new way to optimize portfolios of assets for which cash flows are not observable.

THE KEYS TO SOVEREIGN DEVELOPMENT FUND SUCCESS: INNOVATION, COLLABORATION, & COMMERCIAL FOCUS

Carter Casady, Rajiv Sharma, Ashby Monk — Tue, 23 Jan 2024 00:00:00 -0800

Sovereign development funds (SDFs) and strategic investment funds (SIFs) have become increasingly important investment vehicles for sustainable development. This paper explores how the design and governance of these funds aligns institutional capital with large, long-term investments such as infrastructure, all while yielding high commercial returns for institutional investors. Using the National Investment and Infrastructure Fund (NIIF) of India as a case study, this paper demonstrates how SIFs can crowd-in private capital into strategic assets via collaborative investment models. The paper thus offers a blueprint for how large, long-term institutional capital can be channeled into long-term projects that support economic growth and innovation.

Review on “From Backwards to Boardrooms: The Rise of Institutional Investment in Timberland” by Daowei Zhang, Oregon State University Press

Ghanashyam Khanal — Tue, 23 Jan 2024 00:00:00 -0800

In the past few decades, there have been significant changes; shifts from industrial to institutional investment in timberland ownership worldwide, particularly in the United States. This book review focuses on a recently published book “From Backwards to Boardrooms: The Rise of Institutional Investment in Timberland” by Daowei Zhang, which examines the increasing institutional investment in timberland assets and explores the reasons behind this trend. Through compiling a series of landmark events, corporate reports, and interviews with major parties involved, the book examines the driving forces behind institutional timberland investment. The book is rich in providing a comprehensive analysis of the institutional timberland investment discussing its history and economics, investment strategies, and the challenges and opportunities of managing timberland assets while emphasizing the increasing role of institutional investors in this alternative asset class. It should be a required reading for forestry students and professionals, timberland investors and their asset managers, and those who want to invest in forestry and natural resources.

Blinded by the light? Analyzing celebrity endorsements in special purpose acquisition companies

Antonia Noerthemann — Tue, 23 Jan 2024 00:00:00 -0800

Due to digitalization and easy access to online brokers, financial markets have increasingly become the focus of lay investors. However, without professional investment experience, lay investors face distinct information asymmetries when they must assess the quality of an investment opportunity. Celebrities—individuals with broad audiences and public awareness—can take advantage of this condition and disseminate selective information about investment opportunities, in which they have often invested themselves. Celebrity endorsements in financial products have been especially evident in the case of special-purpose acquisition companies (SPACs), moving the U.S. Securities and Exchange Commission to issue an alert to investors. We pick up on this warning and analyze the effect of celebrity endorsements of SPACs on stock performance and free float. We find that celebrity SPACs underperform noncelebrity SPACs. Furthermore, results show that SPACs that celebrities promote with high-level media coverage on social networks perform worst but, at the same time, report the largest free float.