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Expert Analysis and Commentary
Justin Frankel Mar 26, 2015
Also interesting is that the fund is expected to have a total expense ratio of 1.10%. While this expense ratio is toward the lower end of the range for many liquid alternative offerings, it is high relative to Vanguard’s other offerings. Given that the average Vanguard investor is not used to seeing fees and expenses of that magnitude, it will be interesting to see how Vanguard markets this fund and how investors react to this expense ratio.
Yet, as good as this news is for all of us who advocate for greater use of liquid alternatives, it doesn’t change one of the major concerns that continue to impede wide-scale adoption of these types of investments: the need for support and education to help investors properly evaluate which strategies and offerings are right for them.
The limited track records of most liquid alternative offerings make it difficult to assess how they may perform during prolonged periods of heightened volatility, rising interest rates, and market downturns. It therefore becomes essential that investors and their advisors gain an in-depth knowledge and understanding of the investment philosophies and processes that inform the strategies and guide the portfolio managers.
While a prospectus and fact sheet are necessary and obvious first steps when it comes to investor due diligence, those who consider adding a liquid alternative fund to their portfolio should go beyond the basic marketing materials and try to speak with representatives of the funds being offered. Asking detailed questions about risk management, exposure limitations, organizational depth, and management oversight, to name just a few important factors, are important components to the due diligence process. Good organizations are proud of the infrastructure and internal processes they have built, and their representatives should be accessible and eager to share this level of detail with prospective investors.
Recent surveys suggest that more and more advisors are incorporating liquid alternatives into their portfolios, but while adoption is rising, liquid alts still represent a very small percentage of total assets under management. While it is good news that larger institutions like Vanguard are entering the marketplace with offerings, education and support are essential in order to bring about a meaningful tipping point in terms of AUM.
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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