Aspiring liquid alt fundsters, keep track of this writer.

Forbes contributor Sam Diedrich has penned a concise and pointed introduction to alts mutual funds.

This article may be giving some retail investors their first impressions of this burgeoning, and not-so-simple, investment category. These impressions, for good or bad, are what alts managers will have to work with while reaching out to these readers.

Here is one interesting snippet from the article:

The new tactics employed within hedged mutual funds allow mutual fund investors to gain access to a wide range of traditionally exclusive hedge fund strategies including merger arbitrage, convertible arbitrage, long/short equity, macro trading, etc.  They also represent a vast expansion in the potential client base for the hedge fund industry, unleashing a new gold rush of sorts for alternative asset managers.

Some important points from the article, which I heartily encourage to read in its entirety, are the consolidation in the hedge fund industry and the resulting opportunities afforded to managers in terms of scale.

He also notes the challenges of translating many hedge fund strategies, currently better adapted to the small niche investment pools, to mutual funds' comparatively giant oceans.

For example, he notes:

These limits have the effect of eliminating many types of hedge fund strategies from consideration for alternative mutual funds.  Looking at the existing alternative mutual fund products being offered today, strategies which tend to use more liquid securities and less leverage, such as long/short equity, global macro, and event driven equity, tend to be over-represented compared to the makeup of the traditional hedge fund universe.  Meanwhile hedge fund strategies in fixed income are generally under-represented.

He does note potential advantages to alts such as the ability to tap into less liquid opportunities, short selling securities and utilizing leverage.

However, he also notes potential internal conflicts for alts shops that manage both limited partnership and mutual fund versions of the same strategy, or at least moderately similar versions of a strategy. He discusses the possibility of performance gaps as a result of incentive issues.

In the end, he recommends alts primarily as a diversifier for investor portfolios, such as a "partial substitute for fixed income allocations," to help address correlation.

If this is the picture you want presented to the public, good. Get cracking and seize the opportunity.

If not, then you still have you work cracked out for you engaging writers like Diedrich and educating retail investors.

Get moving. 

Edited by: Tommy Fernandez


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