Financial advisers get more tools for navigating the liquid alts space

Stock market volatility drives up the appetite for alternative strategies

Sep 24, 2015 @ 1:38 pm

By Jeff Benjamin

As stock market volatility continues to tick higher, another player is emerging to help financial advisers navigate the alternative investments space for portfolio diversification.

Launched eight months ago and recently upgraded to make it more user-friendly for advisers, the Liquid Alternative Investments Company is designed to simplify the use of registered alternative-strategy funds.

The platform, which screens and ranks nearly 450 liquid alternative funds based on a multifactor-analysis system, lets advisers run their own screens and build their own portfolios, as well as offers several goal-oriented model portfolios.

Founder and President Ezra Zask said his primary objective is to apply the same kind of research and analysis that exists in the hedge fund universe to the liquid alts universe.

In doing so, Mr. Zask, who came from the hedge fund industry and has authored four books on investing, originally developed a universe of about 1,500 funds that included categories such as real estate and high-yield bonds. The universe has since been paired down by two-thirds by screening mutual funds for at least two of the following characteristics: meaningful short positions, use of derivatives and use of leverage.

“That narrowed the list down but I still needed to see how alternatives would fit into traditional portfolios,” he said, touching on an ongoing debate among users and critics of alternative strategies.

After learning from his earlier versions of the platform that financial advisers don't usually have the resources to research and build their own portfolios using alternatives, Mr. Zask introduced multiple model portfolios that use exchange-traded funds to simulate traditional investments, which are then enhanced with exposure to liquid alts.

“When I was in the hedge fund space, the area of controversy was always about what alternatives do to traditional portfolios,” he said. “This platform is totally interactive, and it allows users to add any combination of alternatives they want.”

As stock market volatility started spiking in August, the liquid alts space has been tested and the results have been mixed, leaving some advisers more confused than convinced. But platforms like this are seen as another means of educating and potentially bringing more advisers into the fray.

“Anything that helps advisers figure out liquid alts is a positive,” said Bradley Alford, chief investment officer at Alpha Capital Management.

“Right now, it's all about education in this new space,” he said. “After two horrible months in a row for the equity markets, alternatives are coming back into focus.”

In some ways, Mr. Zask's platform is similar to what AlphaCore Capital is offering, in that both firms are targeting financial advisers with ways to build portfolios using liquid alt funds.

One major distinction is that Mr. Zask is charging an annual membership fee to access his research tools, while AlphaCore is actually building portfolios for advisers on a subadvisory basis.

But the similarities are not lost on AlphaCore President and Chief Executive Dick Pfister, who welcomes any and all competition to the space.

“It's good to see something like this, and I think there are going to be even more coming,” he said. “It looks like a great addition to democratizing access to alternatives.”

As the universe of liquid alt funds continues to grow, Morningstar Inc. has continued to expand and redesign its alternative fund categories. But the growth of the space also invites new players bent on offering new ways to slice and analyze liquid alt funds data.

“When it comes to alternatives, there are a lot of things under the hood to consider beyond just performance rankings,” said Mr. Pfister. “Part of the challenge for advisers is the wide dispersion in performance. What [Mr. Zask] is providing is more access and more data, and that's all good.”


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