Why the $100B rush on liquid alternative funds?

“We have obviously our own due diligence process where we collect information and have the fund companies go through due diligence process before we add them, but we like to add funds and options really based on what we see as demand in the marketplace,” Greenberg says.

Are They Worth It?

Each strategy and fund has to be evaluated individually, Greenberg cautions, citing the example of comparing two funds. “You really have to understand each fund just the way you would if you’re looking at two similarly positioned long-term bond funds or large cap equity funds,” he says. “You have to look at the specific characteristics and performance of each fund.”

When you consider liquid alts’ overall higher fees versus traditional funds and ETFs, plus many funds’ weak performances year-to-date, it’s fair to ask if their benefits outweigh their costs for retirement portfolios. While cautioning against broadly general applications, Greenberg sees two key points supporting the case for retirees to own liquid alts. 

First, it’s a difficult environment for income investors and expecting fixed income investments to consistently produce 5 or 6 percent returns isn’t realistic, hence the interest in non-traditional bond funds. Increasing longevity also supports the case for liquid alts, he believes. Investors need to grow principal and income to support longer life expectancies and alternatives can help them achieve that result, he maintains.