680A - Investing in Illiquid Assets - New in 2009

This course, offered through the Center for Alternative Investments, examines in depth the illiquid aspects of modern alternative investing. The explosive growth of investments in highly illiquid instruments, driven in part by increased competition for excess returns and in part by changes in views of portfolio allocation, has made this an important area for students. Just as private equity and venture capital were relatively esoteric topics over a decade ago, today sparse attention is paid to the important activity at the periphery of the alternative space.

The course is centered on three modules which offer an illustration of the principals that influence investments in alternative assets. These areas are at the frontier of investments by hedge fund, venture capital, and private equity managers. The first module is alternative energy, followed by reinsurance, and then art. These three topics highlight for the student the common themes facing alternative managers investing in illiquid assets. The course begins with a series of introductory sessions on the history and theory of illiquid investing before moving on to an exploration of the principals in the three modules. The course concludes with an examination of the market correction of 2007/2008 and the role that illiquidity played in the collapse of the financial markets.

Through the examination of these topics, the student will develop a deeper understanding of the dynamics which have led alternative managers to seek ever more illiquid investments; the challenges such investments pose to valuation techniques; and the role such investments play in a various types of portfolios. As a result, the course has as its primary audience finance students interested in careers in as principal investors in the alternative investment space. The secondary audience is students planning careers with significant interaction with alternative managers (i.e. investment advisors, pension fund managers, institutional investors, and fund of fund managers). While there are no firm prerequisites, a working knowledge of private equity, venture capital, and hedge funds industry is assumed. The class is primarily taught in a lecture format complemented by cases and features a number of guest lecturers with deep expertise, both practical and theoretical, in their respective fields.