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Alternative investments go mainstream

Date: Wednesday, October 25, 2006
Author: Dina Hampton, InvestmentNews.com

Alternative investments such as hedge funds and real estate are becoming part of the mainstream, while a new definition of "alternative investments" in North America could encompass capital-protected and structured products, commodity funds, and managed futures, according to a survey by Morningstar.

The study, released today, also indicates that the majority (75%) of financial advisers favor hedge fund adviser registration, be it voluntary or federally required.

The study found that investors' number one reason for hesitation in choosing alternative investments is a lack of understanding, followed closely by a lack of liquidity, and fees.

"The financial advisory industry knew anecdotally that the state of alternative investments had shifted, but we were surprised to find that the majority of advisers expect double-digit growth in alternative assets under management every year for the next five years," said Steve Deutsch, CFA, director of separate accounts and managed investments for Morningstar.

"The rise in usage indicates that financial advisers see alternative investments as smart financial choices for some of their clients, and that further transparency will help advisers and their clients gain confidence to consider adding these investment vehicles to their portfolios.

The survey is based on responses in August 2006 from 600 financial advisers nationwide with collective assets under management of more than $100 billion.

The complete article on the survey results will appear in the November issue of Research.