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.
|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|
When adding alternatives to a portfolio, the allocation source matters. These tips can help you determine where to reduce other allocations in favor of liquid alternatives.