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Liquid Alternative Investments: A Passing Fancy, or the Real McCoy?
NOVEMBER 2014
Howard Tai
Gabriel Wang
Liquid Alternative Investments: A Passing Fancy, or the Real McCoy? November 2014
© 2014 Aite Group LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. 101 Arch Street, Suite 501, Boston, MA 02110 • Tel +1.617.338.6050 • Fax +1.617.338.6078 • [email protected] • www.aitegroup.com
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TABLE OF CONTENTS IMPACT POINTS .............................................................................................................................................. 4
INTRODUCTION .............................................................................................................................................. 5
METHODOLOGY ........................................................................................................................................ 5
THE ALTERNATIVE INVESTMENTS UNIVERSE .................................................................................................. 6
PRODUCT VS. PACKAGING IN ALTERNATIVE INVESTMENTS ..................................................................... 6
LIQUID ALTERNATIVE INVESTMENTS ........................................................................................................ 7
THE RISE OF LIQUID ALTERNATIVES.............................................................................................................. 16
GROWTH IN PORTFOLIO ALLOCATION ................................................................................................... 16
SETTING THE RECORD STRAIGHT ON LIQUID ALTERNATIVE INVESTMENTS ................................................ 24
HOW INVESTOR BEHAVIOR AFFECTS LIQUID ALTERNATIVES ................................................................. 25
LIQUID ALTERNATIVES 2.0: THE NEXT ERA OF GROWTH .............................................................................. 31
THE RISK DIVERSIFICATION FACTOR ....................................................................................................... 32
FUTURE CHALLENGES ................................................................................................................................... 36
HIGH FEES ............................................................................................................................................... 36
REGULATORY CONCERN.......................................................................................................................... 36
CONCLUSION ................................................................................................................................................ 39
RELATED AITE GROUP RESEARCH ................................................................................................................. 40
ABOUT AITE GROUP...................................................................................................................................... 41
AUTHOR INFORMATION ......................................................................................................................... 41
CONTACT ................................................................................................................................................. 41
LIST OF FIGURES FIGURE 1: ALTERNATIVE INVESTMENT STRATEGIES AND VEHICLES .............................................................. 7
FIGURE 2: ALTS MUTUAL FUNDS' ASSETS COMPOSITION BY CATEGORY..................................................... 11
FIGURE 3: ALT ETPS' ASSET COMPOSITION BY CATEGORY ........................................................................... 13
FIGURE 4: ASSET COMPARISON—ALT MUTUAL FUNDS AND ALT ETPS ....................................................... 14
FIGURE 5: AVERAGE EXPENSES COMPARISON—ALT MUTUAL FUNDS AND ALT ETPS ................................. 15
FIGURE 6: MUTUAL FUNDS VS. ALTERNATIVE MUTUAL FUNDS .................................................................. 17
FIGURE 7: ETPS VS. ALTERNATIVE ETPS ........................................................................................................ 17
FIGURE 8: QUARTERLY ALT MUTUAL FUND FLOWS ..................................................................................... 18
FIGURE 9: QUARTERLY ALT MUTUAL FUND ASSETS ..................................................................................... 19
FIGURE 10: ANNUAL ALT MUTUAL FUND LAUNCHES................................................................................... 20
FIGURE 11: QUARTERLY ALT ETP FUND FLOWS ............................................................................................ 21
FIGURE 12: QUARTERLY ALT ETP ASSETS ...................................................................................................... 22
FIGURE 13: ANNUAL ALT ETP LAUNCHES ..................................................................................................... 22
FIGURE 14: NET FUND FLOW VS. FUND PERFORMANCE BY CATEGORY ...................................................... 24
FIGURE 15: NET FUND FLOW Q2 2014 VS. THE PAST YEAR'S FUND PERFORMANCE BY CATEGORY ............ 25
FIGURE 16: 10 LARGEST ALT MUTUAL FUND AUM VS. YEAR-TO-DATE PERFORMANCE .............................. 27
Liquid Alternative Investments: A Passing Fancy, or the Real McCoy? November 2014
© 2014 Aite Group LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. 101 Arch Street, Suite 501, Boston, MA 02110 • Tel +1.617.338.6050 • Fax +1.617.338.6078 • [email protected] • www.aitegroup.com
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FIGURE 17: 10 LARGEST ALT ETP AUM VS. YEAR-TO-DATE PERFORMANCE ................................................ 28
FIGURE 18: LARGEST 10 ALT MUTUAL FUND ONE-YEAR PERFORMANCE VS. ONE-YEAR ANNUALIZED
VOLATILITY .......................................................................................................................................... 29
FIGURE 19: LARGEST 10 ALT ETP ONE-YEAR PERFORMANCE VS. ONE-YEAR ANNUALIZED VOLATILITY ...... 30
LIST OF TABLES TABLE A: SUMMARY STATISTICS—LIQUID ALTERNATIVE STRATEGY MUTUAL FUNDS ................................ 10
TABLE B: SUMMARY STATISTICS—LIQUID ALTERNATIVE STRATEGY ETPS ................................................... 12
TABLE C: PERFORMANCE COMPARISON BETWEEN TRADITIONAL LONG-ONLY AND ALTERNATIVE
STRATEGIES ......................................................................................................................................... 31
TABLE D: ALTERNATIVE STRATEGIES' RISK DIVERSIFICATION PROPERTIES .................................................. 32