Brilliance Bundled in Quantity: The Quest to Understand Liquid Alts

Liquid Alternatives are rapidly gaining a foothold in investors’ portfolios. A recent survey of Defined Contribution (DC) consultants by Pimco showed bullish predictions on the growth prospects for liquid alternatives and enthusiasm for the inclusion of these offerings in DC retirement plan lineups and products, including custom target date and target risk funds.

40 Act hedge fund products represent an avenue for investors of all stripes to gain access (in theory) to less correlated strategies that have the potential to reduce risk and enhance returns, particularly in volatile environments – all within a liquid and more transparent package. They are also an exciting area of growth for both private hedge fund managers and long-only asset managers specializing in mutual funds. The complexity, lesser understood risks and high fees that many critics thought would threaten acceptance haven’t inhibited growth of the burgeoning category. In fact, year on year growth in alternative mutual fund AUM was at 40% as of February, with a product universe expanding to 429 different products, according to Morningstar.