Category: Conferences and Events, Industry Trends

Not What I Expected…


140057613Recently, when I was asked to attend the NICSA Liquid Alternatives workshop in New Jersey, I was excited for the opportunity. Imagine the disappointment on my face when I found out what they meant by liquid alternatives…call me naïve but if you’re invited to a conference titled “Liquid Alternatives” and your company is sponsoring a cocktail reception, let’s just say it leads you to believe certain things.

I quickly learned that a liquid alternative is a relatively new investment vehicle offered by many mutual fund companies. Who knew? To be honest, many of us in financial services have been monitoring the emergence of this new investment vehicle. Liquid alternatives take hedge fund like investment strategies that were once reserved for only high net-worth investors and make them mainstream. Over 70 percent of investors who wish to invest in this type of strategy do not meet the Accredited Investor or Qualified Purchaser qualifications required by traditional hedge fund managers. Generally liquid alternatives are formed as 40 Act funds and have no formal suitability test for the investor’s income. They are bought and sold daily like a traditional mutual fund which is what makes them liquid, as well as accessible to most investors.

The liquid alternative product is a reaction to customer demand resulting from the market collapse of 2008. The idea is to offer a product that diversifies the retail investor’s portfolio and is not correlated with traditional asset classes. Currently, there are approximately $280 Billion in assets under management in liquid alternative products according to Morningstar. McKinsey & Co. estimates that alternative mutual funds will account for 13 percent of all mutual fund assets by 2015, an estimated value of $1 Trillion dollars. With this expected growth, it is no surprise that many fund families are quickly developing liquid alternative products.

At the NICSA Liquid Alternatives conference, the major themes were around convergence and education. Hedge fund and 40 Act fund worlds are colliding – reminding me of the Seinfeld episode where George’s worlds are colliding.

Just as George cries out “you’re killing independent George,” hedge fund managers at times feel similar. This new investment vehicle requires transparency and increased regulatory scrutiny, restricting some of their previous freedom in how they chose investments. How these two worlds intersect and how that will look and feel will vary across products and is yet to be determined.

The new product requires a lot of education for everyone. There is a need to educate investors in what they are buying. There is concern that product distributors may not know the product as well as they should. Fund managers that come from a hedge fund background need to be educated on the new regulatory requirements. Meanwhile fund managers with a mutual fund background are learning how they can think differently about how they invest.

Phil Blake

Phil Blake

After a stint in the insurance industry, Phil moved over to financial services and joined Boston Financial. Since joining Boston Financial, Phil ‘s role has focused on developing new products and services on behalf of Boston Financial’s clients. As a member of the Business and Product Development team, Phil is responsible for delivering innovative products and services that help our clients achieve their business goals, mitigate risk and reduce cost. Leveraging his project management and business analyst skills, Phil enjoys working with our clients and teams throughout the organization to ensure we deliver cost-effective, innovation solutions. After work, Phil enjoys hanging out with his colleagues on the Boston Financial basketball league. The best part was leading his team to the league championship; we are all champions somewhere. Phil also has a bachelor’s degree in Business Administration from Eastern Nazarene College.

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