Alternatives Go Separate

Terry Flanagan

Amongst the boom of alternative hedge fund structures comes the alternative strategy packaged in a unified managed account.

In today’s low-yield world, sticking with traditional investments may not prove to be rewarding for investors. Everyday investors, such as those considered high net worth, are yearning for alternative, non-traditional strategies to generate satisfying returns.

“We believe that alternative investments can play an important role within a diversified portfolio, especially as a means of diversifying away from traditional equity and fixed income risk,” said Scott Welch, co-founder and senior managing director of investment research and strategy at Fortigent.

The firm is a provider of outsourced wealth management solutions for financial advisors and institutions targeting high net worth investors.

The firm has announced its selection of hedge fund replicator IndexIQ’s, IQ Hedge Multi-Strategy as an integrated addition to its Access Overlay, UMA (unified managed account) program; a program consisting of an investment vehicle that holds multiple and diverse investment products within a single account.

“Historically, (hedge fund strategies) were available only in limited partnerships, which limited access only to very wealthy investors,” said Welch.

“That has changed dramatically with the recent growth and evolution of alternative investment mutual funds – investors can now avail themselves of non-traditional investment strategies in liquid, cost-effective, and more highly regulated structures.”

Additionally, limited partnerships cannot be traded within UMAs, thus investors in UMAs were limited to mutual fund solutions if they wanted alternative investment exposure.

For Welch, “that’s a viable solution that still allows for ease of implementation and ease of rebalancing, but there is limited ability to negotiate management fees or tax manage mutual funds within the UMA structure.”

The IndexIQ IQ Hedge Multi-Strategy is packaged in a SMA (separate managed account) portfolio, allowing for more flexibility under Fortigent’s Access Overlay UMA program. Holdings may consist of SMAs, mutual funds, ETFs, or single stock positions and can encompass many different asset classes.

“What makes the Index IQ strategy interesting to us is that it can act as an actively managed “sleeve” account through a SMA rather than as a mutual fund,” Welch explained.

“Not only do Access Overlay investors get the alternative investment exposure they want, they get it in a cost- and tax-managed account. Combine that with the already existent ease of implementation and rebalancing and we believe that is a significant potential added benefit for investors.”

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