Patent ID: 7599872

Claim:
A computer-implemented method of matching an investor's objectives for portfolio investment return and risk with an assessment of a range of expected returns and risks that are likely to be generated by investment portfolios consisting at least in part of alternative asset classes comprising: selecting available historical data for a plurality of alternative asset classes by a first computer software application process tangibly embodied in a physical program storage device executable by a physical computing machine and executing on the physical computing machine; unsmoothing the historical data based at least in part on historical data for traditional asset classes related to the respective alternative asset classes by a second computer software application process tangibly embodied in a physical program storage device executable by a physical computing machine and executing on the physical computing machine, wherein unsmoothing the historical data further comprises computing an estimate of marked-to-market returns for the alternative asset classes based at least in part on the historical data for the traditional asset classes related to the respective asset classes; correcting the historical data for the alternative asset classes for an impact of survivorship and selection biases by a third computer software application process tangibly embodied in a physical program storage device executable by a physical computing machine and executing on the physical computing machine; computing a forecast of an expected return and risk for each of the alternative asset classes based at least in part on the unsmoothed and corrected historical data for the alternative asset classes by a fourth computer software application process tangibly embodied in a physical program storage device executable by a physical computing machine and executing on the physical computing machine, wherein at least one of said alternative asset classes further comprises a hedge fund and computing the forecast of expected return and risk further comprises computing an estimate of the respective proportions of the return for said hedge fund that are related to an average market exposure and those that are generated by manager skill, and wherein computing the forecast of expected return and risk further comprises computing a forecast of expected return for said proportion related to the average market exposure based at least in part on a forecast for a traditional equity asset class and calculating a forecast of expected return for said proportion generated by manager skill based on the respective proportions; and identifying at least one of the alternative asset classes having an expected return and risk that corresponds substantially to the investor's objectives for portfolio investment return and risk for inclusion in the investment portfolio by a fifth computer software application process tangibly embodied in a physical program storage device executable by a physical computing machine and executing on the physical computing machine.