Liquid alternative investment

Liquid alternatives (liquid alts) are alternative investment strategies that are available through alternative investment vehicles such as mutual funds, ETFs, closed-end funds, etc. that provide daily liquidity. Liquid alts are also known as 40 Act funds because they were created by the U.S. Congress in 1940.[1]

Growth of liquid alternative strategies

Launches of liquid alts funds have tripled since 2009 and are predicted to reach $2 trillion.[2]

Major drivers for the growth in liquid alternative funds include:


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 report, the growth of liquid alternatives is "reminiscent of early-stage ETF growth".[6]

Impact

"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 which has issued in early 2014 announced it would conduct a regulatory sweep of the largest of these alternative investments.[7]

References

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