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)

Access

Unrestricted

Liquidity

Daily liquidity

Pricing

Daily Net Asset Value (NAV)

Minimums

Low, typically < $10,000

Fees

Generally higher than traditional mutual funds, but lower than hedge funds

Transparency

Holdings reported quarterly

Use of leverage

Borrowing limited to 33% of assets; asset segregation requirements limit (explicit/economic) leverage via derivatives and short selling

Oversight

Regulated by SEC

Tax Reporting

1099

Private Alternative Investments (Hedge Funds)

Access

Typically restricted to qualified investors

Liquidity

Lengthy tie-up periods

Pricing

Not as frequent—quarterly or monthly NAV

Minimums

High, often seven figures

Fees

Can be very high; frequently a 2% fee + 20% of profits

Transparency

May not be as frequent as quarterly

Use of leverage

Unlimited

Oversight

Less regulated than mutual funds

Tax Reporting

K-1

 

Source: American Century Investments®