Special Situations Investing

Build Your Own Global ETF Hedge Portfolio

The private equity part of your portfolio can be addressed through the ETF PowerShares Private Equity, ticker symbol PSP. The PowerShares Listed Private Equity Portfolio seeks to replicate the Red Rocks Listed Private Equity Index, which includes more than 30 U.S. publicly listed companies with direct investments in more than 1,000 private businesses. This gives investors diversified exposure to a wide range of growth and value- oriented listed private equity companies in a single product. This is a way to back door your way into private equity.

Also, research closed-end funds that invest in private equity. A key way to find these funds is that they will sell at a significant discount to NAV because they have securities that are difficult to value. A great closed-end fund to take a look at is Apollo Group's publicly traded fund (ANIV).

In addition, a better way you can create exposure to private equity is to build your own ETF, so to speak, of specialty acquisition corporations, publicly traded businesses that acquire private businesses in roll ups, etc.. Also look to buy spinoffs, merger securities, and trade alongside activist investors, such as Carl Icahn, Bob Chapman, SAC Capital, and Third Point Capital by keeping an eye on their 13-D filings by searching for these funds at the SEC website.

Finally, another way to create exposure to alternative asset classes is to invest in Fortress Investment Group (FIG), invest in KKR's listed fund (KPE) that trades on Euronext Amsterdam, Man Group Plc that trades on the LSE (EMG), and Sears Holdings (SHLD) that ESL Investment owns that besides operating Sears retail stores invests in various alternative strategies using swaps etc. on their balance sheet. Even more alternative capital funds and hedge funds are listed abroad on the LSE and Euronext, as well as on the Cayman Islands Stock Exchange.

At the end of the day, however, alternative capital really isn't as sexy as CNBC would want you to believe. Too many funds are out there implementing the same strategies, including long-short, relative value, market neutral, risk arbitrage, etc. A lot of these funds are started by people with little to no experience in asset management whatsoever. In Connecticut, you can become a "hedge fund manager" by simply registering as a financial advisor. At the same token, there are some really great money managers out there that deserve their reputation, and remember to always focus on valuation no matter what asset class you invest in.