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Alts Democratized: A Practical Guide to Alternative Mutual Funds and ETFs for Financial Advisors, + Website by Robert J. Martorana, Jessica Lynn Rabe

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Introduction

The allure of hedge funds has enthralled investors since the pioneering work of Alfred Winslow Jones in 1949. Talented money managers have traditionally emerged from the incubator of large institutions prior to gleaning capital from family and friends as a means to launch their own hedge funds, often in the Big Apple. Distant from the Securities and Exchange Commission (SEC) and largely unregulated, hedge fund managers have often employed obscure and complex strategies to generate alpha (excess return or outperformance relative to their benchmarks), and this has allowed the notoriously lucrative “2 and 20 percent” fee structure. Hedge funds are also notorious for their illiquidity, lack of transparency, and high investment minimums. Nevertheless, hedge funds remain an exclusive club that attracts high-net-worth and institutional clients, while being out of reach for the average investor.

That is, until these sophisticated strategies were democratized in the form of Investment Company Act of 1940 ('40 Act) wrappers (i.e., mutual funds), thereby giving hedge fund managers access to the retail market. For some top-tier managers, small accounts are time-consuming and burdensome, but other managers recognize the opportunity to expand their footprints through retail distribution of their hedge fund strategies. Their efforts are paying off, and this book will explore the rapid growth of the liquid alts space.

Why do we say “democratized”? Because liquid alts have extended ...

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