Liquid Lowdown

Asset managers are also introducing managed-account platforms that help investors access customized alternatives. “The ease of investing through a platform—while it’s not a mutual fund where it’s literally point, click, invest—provides many of the same attributes,” including liquidity and transparency, says David Young, president of Chicago-based Gemini Alternative Funds LLC.

Gemini focuses on managed futures in its platform, which is currently available only to accredited investors. It vets the 28 commodities advisors it uses and looks at their activity daily. When reviewing fees for any platform, Young says it’s important to verify what operating costs may be included, such as administration, auditing and reporting.

The high fees associated with liquid alts are often a deterrent. Bob Gerstemeier, founder and president of Gerstemeier Financial Group LLC (a fee-only RIA firm in Chicago and Cincinnati) and chair of the National Association of Personal Financial Advisors (Napfa), typically avoids them because of fees and because it’s tricky to select active managers.

“You are essentially playing roulette when picking the fund you use,” he says. “We have no idea who the best manager is going to be in the future.” Instead, he uses more traditional types of investments categorized as alternatives, including REITs and commodities. Some of his clients have private equity exposure in limited partnerships.

Meanwhile, some industry experts remain hopeful that nontransparent active ETFs will get the green light from the Securities and Exchange Commission despite its recent ruling against an application filed by Precidian Investments and BlackRock.

Haskin, of Alternative Strategy Partners, says it’s a clear setback for these firms and others pursuing a similar “blind trust” structure. “However, I don’t think the ruling is a game stopper,” he says. He thinks it clarifies the SEC’s views about specific aspects of nontransparent ETFs, which will help providers refine their proposed offerings.

He still expects nontransparent ETFs to hit the market in 2015, although he says this could be delayed. “Obviously, more work is still required before the SEC is fully comfortable with a structure that will protect individual investors,” he says.

Meyer, of Meyer Capital Group, expects an eventual onslaught of managed and unmanaged ETFs to bring fee compression, but thinks they will be transparent. “We’re going to see a sea change,” he says, “which will ultimately be very good for the individual investor.”