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


A Comprehensive Review of the Liquid Alts Market and How '40 Act Products Can Enhance Client Portfolios

"This book offers a simple, practical guide that helps investors benefit from their newfound access to advanced strategies. This brings power back to the investor and is the democratization of alternatives."
—From the Foreword by Robert Jenkins, Global Head of Research at Thomson Reuters Lipper

The emergence of liquid alts is empowering advisors and their clients by democratizing access to sophisticated investment strategies. These "hedge fund strategies in '40 Act wrappers" offer new forms of diversification and potential alpha, and are revolutionizing portfolio construction as advisors create new investment solutions to help clients reach their goals.

Alts Democratized and its companion website use Lipper's classification system to provide a detailed analysis of liquid alts, including the factors that drive risk and return and the roles these funds serve in client portfolios. The book features more than 100 exhibits of Lipper data as well as in-depth interviews with executives at leading firms in the asset management industry. The authors offer insightful quantitative analysis and practical applications in this objective, authoritative, and comprehensive resource.

JESSICA LYNN RABE is a Research Associate at ConvergEx Group, a global brokerage company based in New York. Rabe assists the firm's Chief Market Strategist in publishing the ConvergEx MorningBriefing, a daily commentary on financial markets. Rabe has also published articles and contract research on the liquid alts industry.

ROBERT J. MARTORANA, CFA, owns Right Blend Investing, LLC, a Registered Investment Advisory firm based in New Jersey. Martorana manages client portfolios, analyzes alternative products, and is a consultant to the mutual fund industry.

Foreword xiii
Robert Jenkins, Global Head of Research at Thomson Reuters Lipper

Acknowledgments xvii

Introduction xix

CHAPTER 1 Definitions and Methodology 1

Definitions 1

Lipper Classifications 2

The Future 2

Methodology 3

Guide to Chapters 3 through 13 5

Summary 8

CHAPTER 2 Road Map for the Liquid Alts Space 9

Liquid Alts in Context 9

Assets and Net Flows 13

IPOs and Liquidations 13

Risk and Return 18

Summary 20

Questions 20

CHAPTER 3 Absolute Return Funds 21

Definition 21

Total Net Assets and Net Flows 22

Risk and Return 23

Factor Exposures 24

Asset Allocation and Fund Selection 25

Top Ten Funds 26

Blockbuster and Spotlight 29

Summary 33

Problems 33

References 34

CHAPTER 4 Alternative Active Extension Funds 35

Definition 35

Total Net Assets and Net Flows 36

Risk and Return 37

Factor Exposures 38

Asset Allocation and Fund Selection 40

Top Ten Funds 41

Blockbuster and Spotlight 44

Summary 47

Problems 47

CHAPTER 5 Alternative Credit Focus Funds 49

Definition 49

Total Net Assets and Net Flows 50

Risk and Return 51

Factor Exposures 52

Asset Allocation and Fund Selection 54

Top Ten Funds 55

Blockbuster and Spotlight 60

Summary 63

Problems 63

References 63

CHAPTER 6 Alternative Currency Strategies Funds 65

Definition 65

Total Net Assets and Net Flows 66

Risk and Return 67

Factor Exposures 68

Asset Allocation and Fund Selection 69

Top Ten Funds 70

Blockbuster and Spotlight 76

Summary 77

Problems 77

Reference 77

CHAPTER 7 Alternative Equity Market Neutral Funds 79

Definition 79

Total Net Assets and Net Flows 80

Risk and Return 80

Factor Exposures 82

Asset Allocation and Fund Selection 84

Top Ten Funds 84

Blockbuster and Spotlight 88

Summary 91

Problems 92

CHAPTER 8 Alternative Event-Driven Funds 93

Definition 93

Total Net Assets and Net Flows 94

Risk and Return 95

Factor Exposures 96

Asset Allocation and Fund Selection 98

Top Ten Funds 99

Blockbuster and Spotlight 104

Summary 106

Problems 106

CHAPTER 9 Alternative Global Macro Funds 107

Definition 107

Total Net Assets and Net Flows 108

Risk and Return 110

Factor Exposures 111

Asset Allocation and Fund Selection 112

Top Ten Funds 113

Blockbuster and Spotlight 115

Summary 119

Problems 120

CHAPTER 10 Alternative Long/Short Equity Funds 121

Definition 121

Total Net Assets and Net Flows 122

Risk and Return 123

Factor Exposures 124

Asset Allocation and Fund Selection 126

Top Ten Funds 127

Blockbuster and Spotlight 131

Summary 134

Problems 135

CHAPTER 11 Alternative Managed Futures Funds 137

Definition 137

Total Net Assets and Net Flows 138

Risk and Return 139

Factor Exposures 140

Asset Allocation and Fund Selection 141

Top Ten Funds 141

Blockbuster and Spotlight 143

Summary 148

Problems 148

CHAPTER 12 Alternative Multi-Strategy Funds 149

Definition 149

Total Net Assets and Net Flows 150

Risk and Return 150

Factor Exposures 152

Asset Allocation and Fund Selection 152

Top Ten Funds 153

Blockbuster and Spotlight 156

Summary 160

Problems 160

CHAPTER 13 Dedicated Short Bias Funds 161

Definition 161

Total Net Assets and Net Flows 162

Risk and Return 163

Factor Exposures 164

Asset Allocation and Fund Selection 164

Top Ten Funds 165

Blockbuster and Spotlight 170

Summary 172

Problems 172

CHAPTER 14 Lipper Alternative Classifications Summary 173

Lipper Alternative Classification Roles 173

Absolute Return Funds 174

Alternative Active Extension Funds 175

Alternative Credit Focus Funds 175

Alternative Currency Strategies Funds 176

Alternative Equity Market Neutral Funds 177

Alternative Event Driven Funds 177

Alternative Global Macro Funds 178

Alternative Long/Short Equity Funds 178

Alternative Managed Futures Funds 178

Alternative Multi-Strategy Funds 179

Dedicated Short Bias Funds 179

CHAPTER 15 Portfolio Construction 181

Holistic and Goals-Based 181

Macro Environment 182

Correlations Converge 183

Evolution of Investment Management after the Crash 183

Core/Satellite Investing 187

Micro-Endowment Model 188

Summary 190

Questions 191

CHAPTER 16 Volatility Management 193

How Volatility Drag Reduces Compound Returns 194

Talking Points for Clients 199

Behavioral Discipline 199

Summary 200

CHAPTER 17 Suitability and Fees 201

Suitability and Results 201

Interviews 202

Fees 206

Summary 207

Questions 207

CHAPTER 18 Fund Selection 209

Five Key Roles 210

General Tips about Fund Selection 216

Summary 217

CHAPTER 19 Interviews 219

Stephen Horan 219

Roger Paradiso 224

Daryl Dewbrey 228

Daniel Egan 233

Conclusion 237

About the Companion Website 239

About the Authors 241

Index 243