@JPtak:
"On Jan. 1, 2015, there were
1,345 alternative mutual funds in existence. Those funds followed approaches that utilized hedging, shorting, or trend-following, and sported names with terms like “multi-alternative,” “market-neutral,” and “absolute return,” among others.
Guess how many of those alternative funds still exist? 341
. The other 1,000 or so have been liquidated or merged away, a 75% mortality rate."
Beware the hype.
Many alts are also in nontraded and interval-fund formats.
https://www.morningstar.com/alternative-investments/75-alternative-mutual-funds-have-died-there-are-lessons-that-would-be-private-market-investors
Comments
Yet many university endowments have sizable allocation to alternative funds and private equity including the former David Swanson’s Yale University.
“Alts” (Alternatives) is a curious name to begin with … A pretty wide door…
I won’t dispute that as a group they’ve disappointed over the time frame noted.
Where else in the business world does a proprietor offer an “alternative” to their normal product or service when you show up at their door? Not when boarding a plane, checking into a hotel, shopping for shoes … or going to the dentist!
https://pdfhost.io/v/Tb3lMEngT_MStar_Fund_Categories_042024
Alts, short for Alternatives, is a name that stuck for anything beyond stocks and bonds, the mainstay of investments for decades. Hedge funds and pension funds were into Alts even before the term became mainstream. But once the retail investors started getting into Alts, the term Alts or liquid-Alts (listed funds, not nontraded funds, interval-funds, etc) became popular. IMO, it's a good one-word description and it may be hard to find an alternative (!) for it.
Nontraditional Equity
Long-Short Equity
Derivative Income
Alternative
Macro Trading
Event Driven
Relative Value Arbitrage
Options Trading
Multistrategy
Equity Market Neutral
M* Allocation categories include traditional, tactical, TDFs, convertibles. Tactical allocation within Alts could be under Multistrategy.
My LinkedIn comments:
This may also mean that publicly-traded alts format isn't the best for alts.
Is there a way to track alts AUM for publicly traded, nontraded & interval-funds? (excluding hedge-funds)
Alts are so different, & Morningstar has MANY alt categories now, but some have only a handful of funds. May be Morningstar should consolidate its alts categories.
Not one here to pay a lot of attention to Morningstar classifications in choosing investments.
Suspect in the past some retail investors may have viewed Alts (incorrectly) as “hedge funds for small investors” since hedge funds have always been accessible only to the very wealthy. Many restrict withdrawals. Possibly fund marketers played in to this misconception. Many hedge funds have erratic year to year returns that would scare most small investors.
The alleged die-off of alternative funds in the '10s could be evidence of healthy 'wheat from chaff' separation typical of any newly emerging category. Chart in the article ends at 2020, which leaves me wondering whether the improved quality of the offerings and better understanding of the market has led to more encouraging statistics over the most recent 5-year timeframe.
Here is some evidence.
The Globe and Mail: Alternative funds see big jump in flows in first half of 2025 (08-06-25) [paywall]
"Ian Tam, director of investment research for Canada at Morningstar Inc., says almost $9-billion flowed into liquid alternative mutual funds and exchange-traded funds (ETFs) in the first half of 2025. A whopping $6.1-billion was invested in the first quarter of the year alone – more than double the inflows of any previous quarter since liquid alts came to market in 2019.
"Alternative funds accounted for 26 per cent of mutual fund sales in the first half of the year, Mr. Bragg says, while liquid alt ETFs made up about 4 per cent of total ETF sales in the first half.
"Performance has been relatively steady across the range of liquid alternative asset funds, which includes alternative credit and equity, market neutral, multi-strategy, and private debt and equity. The average one-year return is 7.4 per cent, the three-year average is 8.1 per cent, and the five-year average is 6.7 per cent, according to data from Morningstar.
"Alternative investments have changed with the times, Mr. Johnston says. They used to mean investing your money for years with no liquidity options, no interim cash flow, and no secondary market, which doesn’t work for the average retail investor, he says.
Now, funds have lower investment minimums, shorter holding periods, liquidity options and a secondary market."