• Are there constraints in the strategy? If it’s a liquid strategy, is it truly liquid? Are they using exchange-traded products?
• Look at their track record after the first four criteria are met. “The number one area that causes a fund to fail doesn’t have to do with performance—it has to do with compliance violations,” Caine said.
Alternative investments can venture into interesting areas of the market—sometimes boldly. But Zisler cautioned that investors shouldn’t be too brazen about their assumptions on the ability of alternatives to unlock opportunities.
“Just because there is an inefficiency in the market doesn't mean you can systematically exploit it,” he said. “A lot of people talk about it, but they’re not convincing about how they’ll be able to achieve excess returns.”