Possible Doubling in '40 Act Fund Assets

The amount of assets invested in ’40 Act alternative funds, also known as liquid alternatives, could double by 2018, according to a study released by mutual fund industry research firm Strategic Insight, an Asset International company. 

Key to ensuring that growth is improving the comfort level of advisers and investors when it comes to the risks and rewards of liquid alternatives, said authors of the Alternatives Industry Analysis, 2013. By overcoming certain preconceptions and communication barriers, asset managers could see alternative funds reach $490 billion in assets under management over the next five years, according to the study.

Among the list of ’40 Act funds made available to retirement plan investors, Long/Short mutual funds were measured as the most widely-owned alternative products among investors surveyed for the study.

Long/Short mutual funds also saw the most growth among investment strategies in the ’40 Act space, along with funds taking a Global Unconstrained asset management approach.  

Other key findings from the study include a predicted 20% compound annual growth rate among funds in the Long/Short and Global Unconstrained categories.

Strategic Insight researchers surveyed more than 1,200 investors, advisers and industry executives for the survey. Many pointed to disconnects between providers, investors, gatekeepers, and advisers regarding the application of alternative fund strategies as a limiting factor for growth. 

Roadblocks to Liquid Alternative Growth

Some of the principal problems with alternatives respondents reported include complaints about the way gatekeepers (those tasked with controlling which products are available at their firms) try to position products versus how advisers and investors may actually end up using the product.

Another problem frequently reported to survey researchers involved discrepancies between the provider- and gatekeeper-recommended asset allocations versus the actual allocation of alternatives by advisers and investors.

For example, gatekeepers reported recommended allocations of between 10% and 20% to alternatives. But even with more than 90% of the polled advisers using alternatives in a traditional or liquid structure, only 18% of advisers reported allocating 15% or more of their overall client assets.

Additional information on the study’s methodology and results can be found at www.sionline.com