Asset Allocation to Alternative Investments – Part I (2025 Level III CFA® – Reading 19)

Build a smarter CFA Level III portfolio with Alternative Investments. In this Part 1 lesson (Asset Allocation to AIs), Prof. Jim explains when and why to add hedge funds, private equity/credit, real assets, infrastructure, and real estate—and how they affect risk, return, liquidity, and correlation.

What you’ll learn:

Goals of AIs: diversification, risk reduction & return enhancement
Efficient frontier intuition & correlation pitfalls
Real assets & inflation hedging, infrastructure & illiquidity
Private credit & distressed strategies
Policy statement implications, liquidity- vs risk-based approaches
Public vs. private AIs; business-cycle framing
Fees, taxes, capital calls, redemption terms
In-house vs. external managers; fund-of-funds & co-investments

Study with AnalystPrep:
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Level III: https://analystprep.com/shop/cfa-leve...

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Prep Packages for the FRM® Program:

FRM Part I & Part II (Lifetime access): https://analystprep.com/shop/unlimite...

Topic 6 – Alternative Investments for Portfolio Management
Reading 19 – Asset Allocation to Alternative Investments – Part I
LOS: Explain the roles that alternative investments play in multi-asset portfolios.
LOS: Compare alternative investments and bonds as risk mitigators in relation to a long equity position.
LOS: Compare traditional and risk-based approaches to defining the investment opportunity set, including alternative investments.
LOS: Discuss investment considerations that are important in allocating to different types of alternative investments.

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