Today's Liquid Alts Are a Terrible Deal For Investors 

Managers of liquid alts have promised strong returns, low market correlation and better risk/return than typical stock and bond managers. Many investors have been disappointed, often seeing returns that barely beat cash over decades. Despite this poor performance, managers have pocketed roughly 300bps of fees each year. That makes the nearly $100bln AUM liquid alts products meaningfully unbalanced in favor of managers as compared to other investment options. 

The chart below shows the cumulative returns of the Wilshire Liquid Alts Index, which includes the ongoing management fees in the products. Investors in these products also typically pay high load fees, so we have included a line which estimates the annualized drag. Once all fees are factored in investors are seemingly getting returns on par with cash.

Sources: Bloomberg Wilshire, FRED, and Unlimited calculations.

For informational and educational purposes only and should not be construed as investment advice. Past performance not indicative of future results. Fees are calculated by Unlimited using data from the Bloomberg survey of hedge fund performance and management fees. The calculation assumes a high water mark for performance fees.

Many investors are seeing less desirable results because the meager returns generated by these managers are being eroded by fees. In aggregate these managers are generally taking almost 2x the alpha that they are generating. This take rate is considerably worse for investors than even the hedge fund industry.

Sources: Bloomberg Wilshire, FRED, and Unlimited calculations.

For informational and educational purposes only and should not be construed as investment advice. Past performance not indicative of future results. Fees are calculated by Unlimited using data from the Bloomberg survey of hedge fund performance and management fees. The calculation assumes a high water mark for performance fees. Past performance not indicative of future results.

Finding the top funds also hasn’t produced returns similar to just passively holding the stock market. The returns and sharpe ratio of the top 10% liquid alts funds has underperformed that of just a passive holding in the broad US stock market over the last decade once all fees are deducted.

Sources: Bloomberg Wilshire, FRED, and Unlimited calculations.

For informational and educational purposes only and should not be construed as investment advice.  Past performance not indicative of future results.

Liquid alts products favor the manager over the investor more than any other products in the investment landscape. These managers take multiples of the alpha they generate. At Unlimited, we aim to produce products where the investor receives the benefit of the majority of the alpha. By using our return replication technology we are able to create liquid index products that replicate the high quality returns of 2&20 managers with a fee structure designed to allow investors to keep most of the alpha.  

For informational and educational purposes only and should not be construed as investment advice. It does not constitute an offer to sell or a solicitation of an offer to buy any security. Opinions expressed are our present opinions only. No Representation is being made that any investment will or is likely to achieve profits or losses similar to those shown herein. No investment strategy or risk management technique can guarantee return or eliminate risk in any market environment. The material is based upon information which we consider reliable, but we do not represent that such information is accurate or complete, and it should not be relied upon as such. The historical analysis should not be construed as an indicator of the future performance of any investment vehicle that Unlimited manages. Industry-wide load fees were calculated based on the AUM weighted reported load cost of outstanding funds for A-shares or the equivalent and then amortized over a 3yr time frame. The index is non-investable, and no investor achieved the results depicted herein.