For the past 20 years, large institutional investors have allocated a small percentage of their investable money to an asset class called "Alternative Investments". The purpose of this class of investments was to enhance portfolio returns and to diversify their holdings. For the past 10 years, the percentage invested has continued to grow larger. Alternative investments could include investments such as Hedge Funds, Private Equity, Venture Capital, Structured Products, Real Estate and others.
Today there is a relatively new asset available for smaller investors seeking to participate in the "Alternative Investment" class. The investments are called "Liquid Alternatives", and can be wrapped in mutual fund structures. Many of these investments lack a long term track record, so understanding what the manager does and how the money is invested, is paramount to investors. The number of alternative-strategy mutual funds now available is approaching 500 with total assets nearing the $200 billion level.
Once an investor decides to allocate a portion of investments to this asset class, he or she must decide the appropriate percentage to invest. 5%? 10%? 15%? The investor must also have a thorough knowledge as to what the investment management process is within the mutual fund and whether the investment managers have practical experience running this type of strategy.