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RiverPark Structural Alpha Fund's Justin Frankel

Expert Analysis and Commentary

4 Key Points About Liquid Alternatives

Justin Frankel Oct 21, 2014

See also the 7 Questions to Ask When Buying a Mutual Fund.

1. In General, This Is a Good Deal for Investors

Many liquid alternative offerings have more complex strategies than traditional mutual funds, and these added complexities require additional due diligence on the part of investor. In addition, delivering these investment strategies with lower fees, greater liquidity, and increased transparency and regulation will only serve to make the investment experience better for everyone.

2. Not All Liquid Alternatives Are Created Equally

To learn more about this democratization, be sure to read A Brief History of Mutual Funds.

The world’s best and biggest asset management firms are quickly establishing mutual funds to provide all investors with access to their best ideas. In addition, even if a handful of the best managers aren’t moving into liquid alternatives, many great ones are. The primary concern for investors should be finding the right manager and fund. In this respect, the process should be no different than finding a good growth manager in the traditional mutual fund universe. Evaluating the track record of the fund is a good start, but investors also need to consider the strength of the investment process, the experience of the portfolio manager and the fund company, as well as fees and expenses. Fortunately, all of this information is readily available.

Investors also need to understand that some strategies will work better than others when liquidity and transparency are increased. Complex strategies that involve illiquid securities or long holding periods to achieve results are not well suited for a liquid alternative offering, nor are strategies that use a lot of leverage, as leverage use is restricted under the rules of the 40 Act. Many strategies found in long/short equity or market neutral categories do not depend on esoteric formulas, leverage, or trading in illiquid securities to deliver returns, and are therefore well suited for a mutual fund offering.

Be sure to learn more about the history of the Investment Company Act of 1940.

3. Track Record Matters

Given the short public record of many of these funds, it is therefore hard to analyze how they might perform in changing market conditions. However, investors can look at the track records of the managers in charge of these strategies to see how their predecessor funds, or other similar offerings, were managed and how they performed prior to and during the crisis of 2008-2009. While these funds may not have been around as a 40 act structure, if they previously existed as a partnership and can provide audited financials, investors may be able to make more informed decisions.

Be sure to also check out the Top Alternative Mutual Fund Launches of 2014.

4. Understanding Your Own Risk Tolerance Is Still the Most Important Factor

Daily valuation, transparent pricing, and enhanced liquidity make liquid alternatives potentially more attractive than traditional alternatives owned through more restrictive partnership structures. There is always an emotional component to investing, as people are highly sensitive to loss aversion. When properly used, the right liquid alternatives can be used to help reduce overall portfolio risk while maintaining exposure to the markets, and should therefore be considered as part of any diversified portfolio.

About RiverPark Structural Alpha Fund

The RiverPark family of funds consists of seven funds across a variety of equity and fixed income offerings, with a combined $3.6 billion in assets under management. The RiverPark Structural Alpha Fund is a Market Neutral strategy , and is one of three liquid alternative strategies offered by the firm.

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