Salient Partners designs liquid alts strategy with advisers in mind
Waiting for a market pullback so alts can strut their stuff.
Salient Partners announced Wednesday it had completed its acquisition of Forward Management, and immediately set its sights on bringing alternative investment strategies to financial advisers.
The acquisition of Forward, which was first announced in February, creates a $27 billion asset management firm with approximately half the assets categorized as alternative strategies, according to Salient president Jeremy Radcliffe.
“The primary reason for the Forward acquisition was to expand our alternative investment offerings,” he said.
With both the traditional stock and bond markets looking more expensive by the day, the case for diversifying into alternative strategies is becoming easier to make to advisers, Mr. Radcliffe said. But he also acknowledged that until traditional markets experience some kind of correction, alternative strategies will continue to look and feel like expensive insurance policies.
“We know that the liquid alternatives space, broadly speaking, has underperformed traditional assets,” he said. “Our focus is to help advisers use alternatives to improve portfolio efficiency.”
Of the six equity alternative mutual fund categories tracked by Morningstar Inc., long-short equity is the top-performer this year with a gain of 1.12%, followed by multialternative with a 1.05% gain.
Such performance can be a tough sell when stacked up against the small-cap-growth category’s 6.71% gain or the mid-cap-growth category’s 5.96% gain. Even the lumbering large-cap-growth category is up 4.24% from the start of the year.
But even as performance has lagged the six-year bull market for stocks, liquid alternative funds have continued to gain popularity, which effectively endorses the Salient strategy of promoting its alternatives product line.
Through the end of May, Morningstar’s six equity alternative fund categories have grown to $166 billion, including $5 billion worth of net inflows this year.
SOME STAND OUT, SOME DON’T
But a closer look at the specific liquid alt categories shows some standouts and some less-loved strategies, according to Morningstar analyst Jason Kephart.
“We have seen a ton of money flowing into multialternative funds this year,” he said. Through May, multialternative has taken in $6.4 billion, ranking it ninth in inflows among Morningstar’s 50 separate fund categories.
The flows into the category are even more significant when one considers that at $47 billion in total assets, multialternative ranks just 38th in terms of category assets.
Long-short equity, meanwhile, which has total category assets of $55 billion, has seen $1.4 billion in net outflows so far this year.
Salient, like a lot of the money managers, has its own way of defining what is and is not considered an alternative strategy.
For instance, while Mr. Kephart doesn’t consider emerging market debt, infrastructure and real estate to be alternatives, he acknowledges that there’s nothing wrong with Salient doing so.
But he does think Salient needs to consider building up its liquid alts product line in some of the areas that are most appealing to financial advisers who might be newer to the alternatives space.
“We’ve seen a lot of the growth in multialternatives, and Salient doesn’t have that strategy of any real size that everyone is looking for now,” he said.
With a lineup that already includes two dozen mutual funds, Mr. Radcliffe said there are no immediate plans to start rolling out new funds, but he agreed that the “proof is in the pudding” in terms of which strategies will stand up when the broader markets finally correct.
“I think investors are still taking a wait-and-see approach to alternatives,” he said. “You are seeing liquid alts underperform, and that’s not unexpected in a straight-up equity market.”
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