Alts Democratized: A Practical Guide to Alternative Mutual Funds and ETFs for Financial Advisors, + Website

Chapter 2Road Map for the Liquid Alts Space

Synopsis

Despite a decade of blistering growth in assets, including 10 straight years of positive net flows, liquid alternatives have only a 2 percent share of the mutual fund market. This suggests significant growth potential as liquid alts potentially command a larger share of portfolios. When it comes to risk and return data, we caution against a quick read of aggregate data, since each classification has quirks that can be deceptive. This chapter is best used as a high-level overview, and not as a means of comparing classifications.

Liquid Alts in Context

The following figure and tables show how the market share of liquid alts compares to traditional alternatives and traditional mutual funds. These data put liquid alts in a broader context, and show the long-term growth potential. Some of this potential rests on investor familiarity, and some of it rests on investment performance. Both of these factors are likely to drive the continued growth of liquid alts, assuming that these funds deliver on their promises, and eventually grab a larger slice of the asset allocation pie.

Liquid Alts versus Traditional Alts

In Figure 2.1, traditional alternative investments include single hedge funds, hedge funds of funds (FOFs), private equity, and private real estate assets that are distributed through the firm's private client or broker/dealer. Liquid alternative investments comprise mutual funds and exchange-traded funds (ETFs) that generate ...