Alternative Mutual Funds (AMFs) vs. Hedge Funds

AMFs are generally limited to liquid hedge funds strategies (typically credit and equities) and there are many cases where we have found an AMF has provided similar, if not competitive, returns to a given set of hedge funds1. If those instances were to develop, it would be difficult to overlook the potential advantages of lower cost structure, regulatory oversight and the improved liquidity and transparency that is offered by utilizing such vehicles. We are firm believers that the more commoditized a given hedge fund strategy is, the more competitive those fee levels should be versus less traditional niche strategies.

The principal investment categories of Alternative Mutual Funds are as follows:

  • Hedged Equity (Equity Long/Short)
  • Hedged Credit (Credit Long/Short)
  • Market Neutral
  • Futures, Commodities & Foreign Exchange
  • Multi-Strategy

Our goal at Balter Liquid Alternatives is to construct an AMF portfolio that complements a client’s traditional hedge fund portfolio and tailor the investment program to meet a wide range of risk/return preferences. There are a number of different ways in which we apply our work in the AMF space to our client base, whether it be via our outsourced research business line or customized portfolio work.

Hedge Fund structures versus ’40 Act structures – ‘40 Act Funds (also referred to as Alternative Mutual Funds or “AMFs”) are mutual fund structures defined by the Investment Company Act of 1940 that may employ alternative investment strategies. The key differences of AMFs compared to traditional hedge fund structures:

Traditional Hedge Fund

  • * Quarterly redemptions typical
  • * Short positions not typically disclosed
  • * Typical performance fee of 20%
  • * High minimum investment of > $1,000,000
  • * Unlimited leverage
  • * Tax Reporting – K1

Alternative Mutual Fund

  • * Daily liquidity
  • * Quarterly full holdings transparency
  • * No performance fees*
  • * Lower minimum investment
  • * Leverage restricted to 250% gross exposure
  • * Tax Reporting – 1099

* While mutual funds do not have performance fees they do have expenses which apply

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