Liquid alternatives are

alternative investment An alternative investment, also known as an alternative asset or alternative investment fund (AIF), is an investment in any asset class excluding stocks, bonds, and cash. The term is a relatively loose one and includes tangible assets such as ...

strategies that are available through alternative investment vehicles such as

mutual funds A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...

, ETFs, and

closed-end fund A closed-end fund (CEF) is a fund that raises capital by issuing a fixed number of shares which are not redeemable, and then invest that capital in financial assets such as stocks and bonds. Unlike open-end funds, new shares in a closed-end fund ...

s that provide daily liquidity. Liquid alts are also known as 40 Act funds because they were created by the

U.S. Congress The United States Congress is the legislature of the federal government of the United States. It is Bicameralism, bicameral, composed of a lower body, the United States House of Representatives, House of Representatives, and an upper body, ...

in 1940.

Growth of liquid alternative strategies

Launches of liquid alts funds tripled from 2009 to 2013. Major drivers for the growth in liquid alternative funds include: *"The 2008 crisis has fundamentally changed investors’ priorities from a main emphasis on investment returns and alpha generation to an emphasis on diversification and downside protection (or principal preservation), especially in the case of a steep market downdraft" *"investors have had the investment wind in their backs for decades with strong equity markets backed by strong economic growth and appreciating bond markets. They are now faced with extremely low interest rates and slow and uncertain economic growth. The result has been a rethinking of the traditional 60/40 stock/bond portfolio that has been the mainstay of investments" *"Complicating the issue is the changes in the investment management industry in terms of organization and scale of the companies, the host of new products, and the changes in the investment paradigm that has governed the industry for the past four decades. Individuals and institutions have been struggling to develop portfolio strategies to meet their changing needs. The role of alternative investments in investor portfolios has been an important part of this development".

Retail liquid alternatives

Retail investors interested in liquid alts are looking for growth, but want more liquidity than hedge funds provide. In a

Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...

report, the growth of liquid alternatives is "reminiscent of early-stage ETF growth".

Consequences

"The rapid growth of Liquid Alternative Investments has had a profound effect on all aspects of the investment management industry, affecting investors, investment managers, and asset management companies around the world. It has blurred the distinction between formerly segregated parts of the industry—notably hedge funds and mutual funds—and led to competition between the various groups. It has provided investors—both retail and institutional–with a new tool for their portfolios, although many are not certain of its benefits. Investment advisors, meanwhile, have been hard at work learning about this new area and how to incorporate it into their asset management and advisory activities. Most recently, the growth of the industry has piqued the interest of the

Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

(SEC) which has issued in early 2014 announced it would conduct a regulatory sweep of the largest of these alternative investments.

References

External links

The Emergence of Liquid Alternatives and the Case of Managed Futures
Investment {{Investment-stub