Alternatives remain expensive

Date: Friday, August 5, 2011
Author: Andrew Tsanadis, Money Management.com

Alternative investment strategies remain expensive with poorly designed performance fee structures, according to the latest Morningstar sector wrap.

Twelve individual investment strategies in total were assessed in the report, with seven receiving an ‘investment grade’ rating and five ‘recommended’, including the comparatively new alternative investment strategies, AQR Delta, Aspect Diversified Futures, and Winton Global Alpha.

The other two recommendations were handed to Blackrock Scientific Diversified Markets and Fuachier Partners Absolute Return.

Each of the strategies evaluated their performance in each of the last three calendar years to March 2011.

Speaking with Money Management, Julian Robertson, senior research analyst at Morningstar, said the criteria for the assessment were based mainly on management expertise, access to resources and performance fees.

“AQR was a cut above the rest in terms of their management style and the significant research undertaken to ensure investments were undertaken in the best interests of the investor,” he said.

“Fees were also very reasonable when compared with the five other ‘recommended’ funds.”

According to the research though, alternative investment strategies remain generally expensive and have poorly designed performance fee structures compared with traditional strategies and Morningstar recommends that fund managers make greater efforts to ensure investors are not charged inappropriately.

The sector wrap also found that despite the restrictions on short-selling securities being lifted following the Global Financial Crisis, regulatory authorities both locally and globally will impose “unforeseen directives” on alternative vehicles, hampering the ability of their managers to operate effectively.