Liquid Alternatives Versus Private Structures

Compare the benefits of alternative mutual funds versus private alternative structures.

Wider Access to Alternatives

Until recently most alternative investments were available only to a select few. Liquid alternatives, which are alternative strategies provided in a mutual fund structure, make alternatives and their potential benefits available to more investors.

Comparison

  Liquid Alternatives (Mutual Funds) Private Alternative Investments (Hedge Funds)
Access Unrestricted Typically restricted to qualified investors
Liquidity Daily liquidity Lengthy tie-up periods
Pricing Daily Net Asset Value (NAV) Not as frequent—quarterly or monthly NAV
Minimums Low, typically < $10,000 High, often seven figures
Fees Generally higher than traditional mutual funds, but lower than hedge funds Can be very high; frequently a 2% fee + 20% of profits
Transparency Holdings reported quarterly May not be as frequent as quarterly
Use of Leverage Borrowing limited to 33% of assets; asset segregation requirements limit (explicit/economic) leverage via derivatives and short selling Unlimited
Oversight Regulated by SEC Less regulated than mutual funds
Tax Reporting 1099 K-1

 

Source: American Century Investments®