We can’t all be Yale—and certainly not David Swensen.
The legendary manager of the famed university’s endowment was a pioneer in the concept of alternative investing, or the inclusion of non-correlated assets in the investment portfolio. Yet despite innovation that’s brought the strategy “down-market” to retail investors through the use of liquid products, more liquid alternative mutual funds closed in 2015 than in any year on record.
The Wall Street Journal, citing Morningstar research, reports that inflows have dwindled and performance weakened.
“The results show that enthusiasm is fading for what had emerged in recent years as one of the hottest products in asset management—funds that combine hedge-fund strategies like shorting stock with the daily liquidity of mutual funds,” according to the paper. “In all, 31 liquid-alternative funds have been closed this year, up from 22 a year earlier.”
“You had so many funds that were launched in the last couple of years and hadn’t really been tested by market volatility and you’re starting to see the cracks in them,” the Journal quotes Jason Kephart, an analyst at Morningstar.
Assets in liquid-alternative funds grew to $310.33 billion at the end of 2014 from $124.44 billion at the end of 2010.
“But the inflows have slowed as performance faltered this year,” the paper concludes. “The average liquid-alternative fund was down 1.64 percent this year through the end of November, compared with losses of 0.38 percent for the average actively managed stock fund and 0.5 percent for the average actively managed bond fund. Just $85.1 million has flowed into liquid-alternative funds this year, down from $37.7 billion in 2014.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
