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Abstract

Often, the lack of mark-to-market data lures investors into the misconception that alternative asset classes and strategies represent somewhat of a “free lunch.” This article proposes solutions to measuring mark-to-market risk in alternative and illiquid investments. The authors describe how to estimate risk factor exposures when the available asset return series may be smoothed (owing to the difficulty of obtaining market-based valuations). They show that alternative investments are exposed to many of the same risk factors that drive stock and bond returns.

About the Author(s)

Niels Pedersen
Sébastien Page, CFA
Sébastien Page CFA

Sébastien Page, CFA, is head of the Global Multi-Asset Division at T. Rowe Price. He oversees a team of investment professionals dedicated to actively managing a broad set of multi-asset portfolios, including the firm’s target-date franchise. Mr. Page is a member of the Asset Allocation Committee and the Management Committee of T. Rowe Price Group, Inc. Previously, he served as executive vice president at PIMCO, where he led a team focused on research and development of multi-asset solutions. Mr. Page has also served as a senior managing director at State Street Global Markets. He has coauthored three award-winning research papers for the Journal of Portfolio Management and two award-winning papers for the Financial Analysts Journal. Mr. Page is the author of Beyond Diversification: What Every Investor Needs to Know about Asset Allocation and coauthor of Factor Investing and Asset Allocation. He is a member of the Research Committee of the Institute for Quantitative Research in Finance (Q Group) and regularly appears in the financial media, including Bloomberg TV and CNBC. Mr. Page earned a bachelor’s degree in business administration and a master of science degree in finance from the Université de Sherbrooke.

Fei He