About the only time you’ll see an otherwise laid-back Tom Florence get animated is when you mention fees in the liquid alts space, and the general impression that they’re too high.
“Love it, love it; love that question,” says the CEO of Denver-based liquid alternative investment firm 361 Capital, gamely rising to the challenge. “The early entrants into the world of alternative investments were hedge funds into ‘40 Act funds, and they dragged along the performance-based fee structure. So you’d have to pay the manager 150 basis points and then there were all these performance-based fees. It’s evolved to where it’s now really just a management fee, as there is in a traditional mutual fund, without any incentive fees.”
For instance, he points to the firm’s managed futures fund, which he says is 180 basis points “all in,” with 150 basis points as a management fee.
“They are going to come down,” he says pointedly. “We’re constantly looking at fees in the industry relative to where the assets are going. Now you’re seeing multimanager funds that, rather than hiring hedge fund managers to manage the assets in the traditional sense, they’re able to lure those managers for a flat fee. So they’re becoming much more investor friendly, which is a good thing and what should happen.”
The firm, founded in 2001 by president and CIO Brian Cunningham, has a sole focus of taking its “experience and knowledge in the alternative space ‘post-Bernie,’ and all that nastiness with illiquidity, high fees and a lack of transparency, and put these strategies into something usable,” according to Florence.
“All lot of these strategies are good strategies and have a place in the portfolio, and why shouldn’t everybody have access to them?” he rhetorically asks. “So we see a ’40 Act mutual fund as the perfect vehicle for something like that. Our view is to take the strategies that make the most sense in mutual funds and then put them in mutual funds. Our mission as a firm is to create alternative investment vehicles that have weekly liquidity or better, and then teach our advisors who we work through how to best use them in portfolios.”
So is the alternative investment story an easy story to tell at this point? Yes and no, Florence responds.
“There was a lot of interest around alternative investments in 2008 and 2009. Since then we’ve had this tremendous bull market, so it’s hard to get excited about anything other than the S&P 500. However, what is starting to draw people to it is the question of what will happen with fixed income and rising interest rates.”