Use of Alternative Mutual Funds

In a recent speech, Norm Champ, Director, Division of Investment Management discussed the alternative mutual fund market.  “While there is no clear definition of “alternative” in the mutual fund space, an alternative mutual fund is generally understood to be a fund whose primary investment strategy falls into one or more of the three following buckets: (1) non-traditional asset classes (for example, currencies),(2) non-traditional strategies (such as long/short positions), and/or (3) illiquid assets (such as private debt).”

Mr. Champ  said that firms must adopt policies and procedures for assessing the liquidity of a security.  Fund sponsors must also make sure that disclosure in prospectuses and marketing materials reflect the true portfolio management activities.  Mr. Champ called on independent directors to monitor these issues.

My thought is that investment advisers should be prepared to show due diligence in regards to any “alternative” investments, including mutual funds in which they invest client funds.  As part of this, implementation of (or beefing up  current) policies and procedures to specifically address due diligence and valuation of these types of alternatives are in order.



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