Don't ignore basic due diligence on alts

Live from the IN Alternatives Conference: 'You always need to understand what you're purchasing'

Sep 23, 2013 @ 4:39 pm

By Jeff Benjamin

alternatives
+ Zoom

Just because alternatives investment strategies are becoming easier to buy and sell — and are being wrapped inside registered products such as mutual funds and exchange-traded funds — doesn't mean that investors and financial advisers can ignore basic due diligence.

“You always need to understand what you're purchasing,” said Luke Oliver, director of Deutsche Bank's DBX North America business.

He joined David Lafferty, an investment strategist at Natixis Global Asset Management, on a panel discussion about liquid alternatives investments as part of the InvestmentNews Alternative Investments Conference in Chicago.

“In terms of the due diligence, you've really got to get your arms around the source of alpha and find out what the strategy's beta is,” Mr. Lafferty said.

When it comes to due diligence, most investors fall into one of two camps, he said.

“There are those people who are looking for great returns, and they will pay a lot of attention to a track record even if they don't fully understand the strategy. And there are those who will like the story and the strategy, and they don't care as much about the track record,” Mr. Lafferty said said.

When the panelists were asked which alternatives strategy they would put their own parents into, Mr. Oliver said that he would use a currency strategy because he believes that over the long term, the U.S. dollar will gain against most other currencies.

Mr. Lafferty didn't commit to a specific strategy but expressed support for an allocation to alternatives investments for most investors.

Both panelists agreed that as more alternatives strategies enter the registered investment arena, there will be downward pressure on fees.

Even though liquid alternatives almost always have lower fees than less-liquid private investments such as hedge funds, the liquid alternatives typically come with higher fees than more traditional mutual fund and ETF strategies.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Tech tools of tomorrow: Innovations your firms can't live without in 2020

Gadget Girl hits the tech pavilion at Pershing INSITE to see what exciting new tools advisers can't afford to miss.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print