April 2022 NM unique assignments Chris is a portfolio mana

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Alternative Investments II

1. Chris is a portfolio manager at Finance Advisors, a wealth fund. He is planning to
include real estate in his portfolio. Explain how the real estate investments are similar and different from the traditional forms of investments, i.e., bonds and stocks. Also, measure the two ratios which are widely used for measuring the leverage associated with the real estate properties. (10 Marks)

2. For private equity funds, a major problem is the agency problem associated with the target investments. Enlist what is the agency problem in private equity and also, mention the measures in detail which are used by the PE funds to address this agency problem. (10 Marks)

3.a. Calculate the value of a company using the price-to-FFO and price-to-AFFO approaches:
Funds from operations (FFO): $30
Office subsector average P/FFO multiple: 12
Office subsector average P/AFFO multiple: 20
Non-cash rents: $5
Recurring maintenance-type capital expenditures: $10
Shares outstanding: 10 million shares (5 Marks)

3.b. Explain different theories of commodity futures returns. (5 Marks)

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