Alternatives Knowledge Base

Alternative Investments Learning Path

Properties2
descriptionA seven-stage structured reading sequence from core mechanics to source-backed review, with self-check questions at each stage.
tagslearning-path, study-guide, navigation

5 min read

Alternative Investments Learning Path

Work through these stages in order. Each builds on the last. Stages 1–4 cover mechanics and economics; Stages 5–7 cover risk, asset classes, and independent verification.

Start with the Glossary alongside Stage 1 to anchor terminology as you go.

Stage 1 — Core Private Markets Mechanics

Purpose: Understand why alternative investments exist and what makes them structurally different from public markets before learning any specific asset class or structure.

Read in order:

  1. Illiquidity Premium
  2. Diversification
  3. Capital Commitments
  4. Drawdowns and Distributions
  5. J-Curve
  6. Vintage Year

After this stage you should understand: Why investors accept locked-up capital; how capital flows into and out of a closed-ended fund; why early fund returns are typically negative; why vintage year matters for comparing funds.

Self-check:

  1. What is the illiquidity premium and why should it exist?
  2. What is the difference between a commitment and a capital call?
  3. Why do PE funds typically show negative returns in years 1–2?
  4. If two funds both show 15% IRR, why might they not be comparable?

Stage 2 — Fund Structures and LP/GP Economics

Purpose: Understand who is in an alternative fund, what their role is, how the legal structure works, and how economics are divided.

Read in order:

  1. Limited Partnerships
  2. LP Roles
  3. Open-Ended vs Closed-Ended Funds
  4. Carried Interest
  5. Waterfalls
  6. Recycling Provisions

After this stage you should understand: How a limited partnership is structured; what GPs and LPs each do and what protects LP capital; how carried interest is earned and how the waterfall sequences it; how recycling provisions defer distributions.

Self-check:

  1. Why must LPs remain passive investors?
  2. What is the role of the LPAC?
  3. Walk through the four steps of a European waterfall.
  4. What is the difference between a hard hurdle and a soft hurdle?
  5. How does recycling affect DPI?

Stage 3 — NAV, Valuation, and Reporting

Purpose: Understand how private fund value is measured, why it is uncertain, and how it reaches investors.

Read in order:

  1. NAV
  2. NAV Production
  3. Valuation Risk
  4. Investor Reporting

After this stage you should understand: What NAV is and how it differs from market price; the Level 1/2/3 fair value hierarchy; why private asset valuations involve significant judgement; what a quarterly LP report contains and what its limitations are.

Self-check:

  1. What is the difference between GAV and NAV?
  2. Why is most of a PE fund’s portfolio Level 3?
  3. What incentives might cause a GP to delay markdowns?
  4. What is the difference between a preliminary and a final NAV?

Stage 4 — Performance Metrics

Purpose: Learn to read and interpret the numbers that appear in a private fund performance report.

Read in order:

  1. IRR
  2. MOIC
  3. TVPI
  4. DPI
  5. RVPI
  6. Public Market Equivalent (PME)

After this stage you should understand: The difference between IRR and MOIC; the TVPI = DPI + RVPI relationship; why DPI is a harder number than TVPI; how subscription lines distort IRR; how PME contextualises PE returns against public markets.

Self-check:

  1. A fund has TVPI 1.8× and DPI 0.4×. What does that tell you?
  2. Why does a subscription line increase reported IRR?
  3. What is the difference between gross IRR and net IRR?
  4. Why might a fund with high IRR have low MOIC?

Stage 5 — Liquidity, Leverage, Concentration, and Operational Risk

Purpose: Understand the risk landscape specific to alternatives, with particular focus on the four risks most distinct from public markets.

Read in order:

  1. Liquidity Risk
  2. Leverage Risk
  3. Concentration Risk
  4. Operational Risk
  5. Currency Risk

After this stage you should understand: How overcommitment risk can cause LP-side liquidity crises; how LBO leverage amplifies equity losses; how hidden concentration can emerge across a “diversified” portfolio; what operational due diligence checks look like.

Self-check:

  1. What happens to LP liquidity planning when multiple funds call capital simultaneously in a downturn?
  2. If a company is acquired for £100m with £60m debt and the exit value falls 40%, what is the equity return?
  3. What is “hidden concentration” and give one example?
  4. What distinguishes portfolio-company leverage from fund-level leverage?

Stage 6 — Asset Class Deep Dives

Purpose: Apply the mechanics, structures, and risk concepts from earlier stages to specific asset classes.

Read in order:

  1. Private Equity
  2. Private Credit
  3. Hedge Funds
  4. Real Estate
  5. Infrastructure

After this stage you should understand: How the waterfall and J-curve apply in PE buyouts; how PIK interest inflates private credit NAV; why hedge fund liquidity terms matter as much as strategy; why real estate NAV depends on annual appraisals; what differentiates infrastructure from real estate.

Self-check:

  1. What is PIK interest and why does it matter for reported income?
  2. Why does a hedge fund’s lock-up period matter for operational risk?
  3. What is the DSCR and why does it matter for a leveraged buyout?
  4. Why does real estate fund NAV carry more valuation lag than PE?

Stage 7 — Source-Backed Review

Purpose: Connect the knowledge you have built to public industry standards, so you can verify, deepen, and challenge what you have learned.

Read in order:

  1. Sources – Index
  2. ILPA Templates — then re-read Investor Reporting
  3. IPEV Valuation Guidelines — then re-read Valuation Risk
  4. IFRS 13 Fair Value Measurement
  5. Invest Europe Professional Standards — then re-read LP Roles

After this stage you should understand: Which public standards underpin each major knowledge area; where knowledge-file descriptions are simplified vs authoritative; which claims require professional verification before relying on them.

Self-check:

  1. Which standard defines the Level 1/2/3 fair value hierarchy?
  2. What is the difference between ILPA Templates and ILPA Principles?
  3. Which source covers governance best practice for European PE managers?
  4. For a US-domiciled fund, which accounting standard applies to fair value measurement?

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