Alternative Investments. Accounting, Finance, SPSS Essay

Alternative Investments
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Alternative Investments
My alternatives are Long / Short (hedge) funds and Private Equity funds.
Long / Short (hedge) fund
It is an investment strategy that involves selling equities anticipated to decrease in value, and those that increase in value are bought. A long/short equity strategy focuses on minimizing various market exposures while earning profits from equities bought but balancing with losses from equities sold after their value declined(Guides, 2019). This alternative is common with hedge funds, although many investors prefer a market-neutral strategy whereby the value of equities sold is equal to the value of equities bought.
The performance of the fund in the last five years has been good. The reason is the fund recovered losses in 2019 for the worst losses suffered in 2018; hence there has been an improvement of over 5 % per year.
This fund's primary investment objective is to find investments expected to rise and those that fall and invest in both, intending to maximize potential returns. For instance, a fund manager may take $100 and invest in equities expected to do well. He will then use the same equity to open equities expected to fall, and when he receives cash, for instance, $30, he will reinvest the cash in equities expected to increase in value. Hence he will have a $160, $130 positive portfolio, and a $30 negative portfolio.
Private Equity funds
These are pools of capital that are invested in companies that provide a likelihood for potentially high returns. They have tied with an investment horizon that is fixed but typically ranges from 4 to 7 years, but in the end, the private equity firm will hope to exit the equity plan with positive returns (Schell, 2020). The exit strategies available include the sale of the company to another strategic buyer or through an Initial Public Offering (IPO)
According to Schell (2020), this fund's investment objective and strategy are to have a controlling interest in a company and participate in the company's direction and management to increase its value through investment in diversified portfolios, especially market investments that are privately owned.
Private equity funds' performance indicates an average net-of-fees fund performance of 3% annually over the last three years. When risks are adjusted, it indicates an underperformance of 6% annually over the past three years.
Risk-adjusted return measures of the two alternatives
Risk adjustment return involves calculating potential returns from investments taking into account the degree of risks to be accepted to obtain the returns.
Private Equity
Sharpe ratio
This ratio measures the returns of the investment that go beyond the risk-free rate. It is obtained by dividing the risk-free rate from investment return with a standard deviation (Korteweg, 2019). This ratio will indicate how private equity fund is performing compared to the risk-free investment rate of return...