Many market analysts project low or negative equity and bond returns across the next decade—but there are always alternatives.

Advisors and investors frequently lament the expensive fees, high minimums, illiquidity and difficulty in accessing alternatives, but innovative managers are stepping in to offer time-tested investments and strategies to a broader audience. “There are a lot of products now, even from larger managers, which are available to a wider audience than just qualified investors,” says Aaron Steinberg, director of hedge fund and alternative asset management sales at BNY Mellon Pershing. “They could be offered in liquid alternatives, ’40 Act funds, open-ended funds, closed-end funds, business development companies or interval funds.”

Though the pace of liquid alternative fund launches has cooled during the bull market, alternative strategies in private equity, real estate and private debt are increasingly available via pooled vehicles or on platforms from the likes of iCapital, Artivest and CAIS. More liquid, accessible or inexpensive alternative strategies are launching at a time when advisors are struggling to allocate client capital, says Mitch Rubin, co-CIO and managing partner at New York-based RiverPark Funds.

“There’s a lot on the minds of advisors,” says Rubin. “We’re at or near the end of some historic multi-decade bull market in bonds, interest rates are moving higher, whatever the advisor is doing in fixed income feels treacherous. Then there’s the question of what to do with equity market exposure after such a strong, long-term run. The dilemma doesn’t necessarily dictate itself to longing a bond or equity fund, but to adding an alternative. Institutions can go 10%, 15%, 20% into alternatives, but most advisors haven’t had the tools to do that.”

Rubin co-manages the $100 million RiverPark Long/Short Opportunity Fund (RLSIX), a strategy that has been offered since 2009 as a hedge fund, but was converted into a ’40 Act mutual fund in 2012. Like most alternative managers, Rubin uses a patient, long-term approach to investing, but through the open-ended structure also offers daily liquidity in his fund.

“There are projections of 0% to 4% growth globally, but there will still be a bunch of businesses growing secularly at 15% to 20% or more,” says Rubin. “There are also businesses who, in a strong economy, are struggling to grow or are shrinking. We expect those vectors to widen. With a long/short strategy, you can have both sides of the research expressed while also having a natural hedge to the market.”

RiverPark’s managers aim to compound at 7% to 15% annually through any kind of market. The strategy has offered five-year average annualized returns of 7.19%, according to Morningstar, but carries an average 3.17% expense ratio. RiverPark decided to go to the liquid alternative universe with its long-short strategy, but some managers are reticent to abandon the illiquidity premium, which can help boost a strategy’s returns.

Earlier this year, a partnership between New York-based Oppenheimer Funds and the Carlyle Group launched the OFI Carlyle Private Credit Fund, an interval fund to offer investors multi-strategy access to the private credit space.

“What we’ve found is that there’s a tremendous amount of interest in this type of investment, but the only way to access it traditionally has been through a limited partnership structure with less liquidity, higher minimums and higher fees,” says Ned Dane, head of the private client group at OppenheimerFunds. “To access this kind of product, even for a wealthier client, in the past you would have needed quite a large portfolio to create the broad diversification. Even for advisors serving wealthy families, this solution is interesting because of its flexibility.”

By using an interval fund rather than a limited partnership vehicle, Oppenheimer can offer investors quarterly liquidity. Each quarter, 5% of the fund’s AUM is available for redemptions. If redemption requests exceed 5%, the managers will offer redemptions pro rata.

The fund allocates to direct lending, opportunistic credit, loans and structured credit and “liquid credit” like traditional corporate and sovereign bonds. The managers use the fund’s liquid credit allocation to provide quarterly liquidity for the fund.

“We feel that the primary demand for our strategy is as a cash-flow generator, if you look at where the marketplace is currently and what’s selling at a premium,” says Dane. “If you’re looking at the private credit space, you’re probably making an incremental income of 400 to 500 basis points over bank loans. That’s the impact of the origination and illiquidity premiums together.”

The interval fund structure also allowed Oppenheimer to offer the fund for a $25,000 investment minimum and use 1099 tax reporting in lieu of a more complicated Schedule K-1 form. The fund charges a 1.5% management fee and a 20% incentive fee after a hurdle of 6%, which means the first 6% of distributions generated by the fund all go to the investor. After that, the remaining income is split between investors and managers 80% to 20%. The incentive fee is charged only on income generated by the fund, not on the capital appreciation.

Thus far, the OFI Carlyle Private Credit Fund has garnered $50 million in assets.

While many high-net-worth advisors are accessing private investment opportunities via pooled vehicles offered on technology platforms like iCapital and Artivest, others are creating pooled vehicles of their own. That’s what Houston-based CAZ Investments has done with its Private Equity Access Fund II, says Christopher Zook, founder and CIO of CAZ Investments.

“When we identify something, we’ll put our money in, [and] we’ll open it up to other family offices, institutions and advisors to come alongside us,” says Zook. “We allow advisors and investors to get into investments they otherwise usually can’t get on their own because the minimums are too high and they’re not in the deal flow. We provide access to innovative things that people can’t get on their own.”

CAZ Investments is a $1 billion AUM family office that has been offering access to private equity investments to clients and partners since it was founded in 2001, mostly to qualified clients who are required to have $2.1 million in net worth or qualified purchasers who are required to have $25 million in net worth. In 2017, the firm created the Private Equity Access Fund II to offer access to all its private equity investments to accredited investors, who have a much lower $1 million hurdle.

What makes Zook’s vehicle unique is its liquidity mechanism. “We created a vehicle that has liquidity for the investor at any time after their second year in the investment,” says Zook. “That goes back to our structure as a multifamily office. Because we have a shareholder base willing to make the investments, they’ve also been willing to be a backstop and allow investors and advisors to get into an opportunity and literally get any dime that they put into it out after the second year.”

Of course, pulling money out of the vehicle early results in the loss of the time value of the investor’s money, says Zook—the investor receives their original investment back sans gains. CAZ’s strategies have invested with Google in the ride-sharing company Lyft, alongside John Paulson in shorting subprime mortgages ahead of the global financial crisis, and in private pipeline partnerships amid the Texas shale oil and gas boom.

“It’s a broad range of investments, depending on the risks we’re taking,” says Zook. “Real estate, finance, midstream. When I talk about private equity, I tell people that I do not personally put my money in anything that I do not have an extremely high level of confidence will generate a 15% or higher internal rate of return, net of all costs, and a two-times multiple on my money.”

Zook says that advisors will need the alpha provided by alternatives, particularly private investments, to truly differentiate themselves if the projections for a low return environment in public markets come true.

For advisors to be able to leverage those opportunities, more education about alternatives will be needed. “The biggest challenge for RIAs and the broader public is how to access these strategies, how to vet them and how to find managers who are a good fit,” says Steinberg. “The challenge on the other side for hedge funds and alternative managers remains how to bring these products to a larger group of people.”