Investing in alternative assets typically relies less on publicly available information and more on a manager’s ability to analyze and underwrite its investments.
The manager impacts the performance of alternatives
The chart below shows that the range in performance between the top- and bottom-decile managers of alternative strategies is significantly larger than that of traditional strategies. For example, the difference in returns between the top and bottom long/short credit fund managers has averaged more than 26%. For event-driven fund managers, the dispersion of returns is even higher at more than 30%.
For traditional investment strategies, such as domestic stock and bond funds, the range of returns between top- and bottom-decile managers is just 11.1% and 5.4%, respectively.1 These sizable differences demonstrate why investors must carefully consider an alternative asset manager’s track record and experience before investing.
Performance spread between top- and bottom-decile managers (2005–2014)
In the context of alternative investments, higher returns may be accompanied by increased risk and, like any investment, the possibility of an investment loss. Investing in alternative assets relies less on publicly available data and more on a manager’s ability to analyze and underwrite its investments. Therefore, alternative investments may be subject to higher costs and fees than traditional investments. Investors should be aware of the benefits and risks of each investment and seek the advice of a qualified investment advisor before investing.
1 Performance measured from December 31, 2004, through December 31, 2014.