Almost exactly one year ago, on December 6th, 2013, Marc Irizarry and his team at Goldman Sachs published a definitive research report called Retail Liquid Alternatives: The Next Frontier. At the time, liquid alts were just beginning to register on the radar screens of many traditional alternative managers, advisors, and investors. The report highlighted growth potential of nearly $2 trillion in AUM over the next 5-10 years, while it also focused on issues like distribution and the challenges of dealing with the knowledge gap between the portfolio managers who helmed these strategies, the advisors to whom they were marketed, and the retail investors. In the 12 months since that piece came out, liquid alts are on their way to achieving the growth expectations that were set. They have become more widely adopted by investors, who now have more choices in more categories than they ever did before. Yet, some of the challenges laid out in that GS report remain.

As we get ready for 2015, liquid alts are poised to become an even more significant part of the alternatives conversation. After years of relative calm and strong equity returns, investors and their advisors are starting to prepare for a shift away from the current low volatility and accommodative Fed environment which has fueled this current bull run. They are taking a closer look at allocating to liquid alternatives as a hedge against the risk of rising stock market volatility and the likelihood of rising interest rates.

Still, the major hurdle in the way of larger adoption remains education. This is a responsibility shared by everyone in the value chain. Managers need to become more adept at explaining both the risks and benefits of their strategies for advisors. Having a more comprehensive understanding of what an advisor is trying to accomplish by adding liquid alts to the portfolio will make it easier to highlight these benefits, and will make the potential risks easier to understand as well. As the creators of these strategies gain greater insight into the advisors perspective, it will become easier to show that advisor how the products align with those goals.

Advisors have to become more comfortable with how liquid alts can enhance a diversified portfolio, and how to best explain the risks and benefits to their clients. That means embracing slightly more complex ideas like derivatives and hedging, and putting in the time with their clients to ensure that they understand how these newer strategies will complement their existing portfolios. Finally, clients and investors need to become more self-aware in terms of their own risk tolerance. Understanding that managing risk will often mean trading away some upside potential for a smoother, less volatile ride is important. Alternatives can give investors access to sources of return that are not correlated to other parts of their portfolios as well as diversification from traditional sources of risk. Hopefully, by speaking the same language, all the participants in the value chain can work together to overcome the knowledge gap and allow liquid alts to reach their full potential in terms of depth and breadth of use.

Finally, a good dose of patience will also be required. The growth from billions of dollars in AUM to trillions of dollars in AUM will take time. The full benefits of alternatives can only be evaluated over a full business cycle. Setting appropriate expectations for both upside potential and downside protection, and then having the courage and patience to stay with these investments in order to allow them to do what they are designed to do

The next phase of growth for the liquid alts space is here. The questions now revolve around how to best find, implement, and track these strategies. After two solid years of strong equity returns, 2015 might offer the best landscape within which the efficacy of these newer products will be tested. It will be exciting to see where the industry is one year from now.

Justin Frankel co-manages the RiverPark Structural Alpha Fund with Jeremy Berman. Prior to joining RiverPark, Justin and Jeremy managed the same strategy as a hedge fund since 2008, and that predecessor fund was converted into a mutual fund in June of 2013.

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.