Concern grows over liquid alt risks

Author: Zoe Thomas | Published: 9 Dec 2014
The SEC wants it left out of financial reports
The number of managers who have moved from hedge fund to mutual fund management since the financial crisis is raising concern among regulators about risk management and disclosures.

They are making the switch as a result of the growing popularity of liquid alternative funds (liquid alts).

Liquid alts are mutual funds, registered with the Securities and Exchange Commission (SEC) under the 1940 Investment Company Act (40 Act). Unlike traditional mutual funds, liquid alts use hedge fund-like strategies. The mix of the hedge fund approach and 40 Act registration has made liquid alts particularly popular, as they outperform other mutual funds and offer fund managers a larger pool of potential investors.

But their popularity has sparked concern among regulators that managers and investors may not fully understand the risks involved.

"The SEC is...