In this third video of a three-part series, DailyAlts.com publisher and editor Brian Haskin sits down with Rob Guttschow, Senior Portfolio Manager of First Trust Advisors to discuss how advisors should go about getting alternatives exposure for their clients, and how and why hedge funds can or should make the jump to liquid alternatives.
Mr. Guttschow says advisors should first consider whether they want to give their clients exposure to public or private alternative markets, since each has its own set of pros and cons. “Public” – i.e., liquid – alts can’t take on as much leverage, nor can they make the illiquidity premium of private alternatives, but the regulatory regime provides a baseline of safety, in Mr. Guttschow’s view. This, however, is no substitute for due diligence.
A number of hedge fund managers have made the leap to liquid alts, and in Mr. Guttschow’s view, this is due in part to increased regulation of the hedge fund industry. Under Dodd-Frank, for example, hedge funds are required to register and maintain certain levels of compliance, which has lowered the threshold of cost for hedge funds pursuing a ’40 Act fund operation. According to Mr. Guttschow, distribution, more than regulatory compliance, is the potential Achilles heel for hedge funds looking to launch liquid alts products.
Click here for Part I or Part II of this video series. For a list of all the exclusive DailyAlts videos, click here.