Defining Liquid Alternative Investments

Abstract

Most alternative investments, such as private equity or hedge funds, have historically been offered mainly as illiquid and less-than-transparent private placements sold to high-net-worth and institutional investors. Liquid alternative investments are innovative products that democratize alternative investments by allowing all investors to easily access these strategies in an exchange-traded and transparent format. This article introduces limited partnerships and then discusses the need for, and the format of, liquid alternative investments that are offered as registered products under the UCITS or Investment Company Act of 1940. Although there has been substantial growth in liquid alternatives in recent years, the regulations that restrict manager flexibility are likely to constrain both the risk and return of these liquid vehicles relative to traditional hedge fund investments.

TOPICS: Private equity, real assets/alternative investments/private equity, mutual funds/passive investing/indexing, legal/regulatory/public policy