REIT chart

While hedge fund indexes go back 25 years, liquid alternatives are relatively new. Unfortunately, there aren’t widely accepted benchmarks to gauge performance. We could use mutual fund data providers’ category averages, but there are 15 of them. And within each category, there are funds that follow completely different strategies, many of which may not be “alternative” by the two criteria given above.

At Goldman Sachs Asset Management, we set out to make life a little easier for advisers interested in finding and tracking liquid alternative investments. We took the universe of 642 so-called alternative mutual funds (as of June 30), and narrowed it down to approximately 300 funds that we believe can potentially provide returns that are different than those of stocks and bonds (as defined by beta and correlation to major stock and bond indexes), and reduce portfolio risk (as defined by a minimum shorting/hedging threshold).

After combing through each fund’s publicly available information, we then categorized the approximately 300 alternative funds into five categories or peer groups, the same ones used by hedge fund databases and institutional investors. The five peer groups are intended to help advisers construct diversified portfolios of liquid alternatives; four are single strategies, to use in building customized solutions, and the fifth is multistrategy, for advisers seeking a pre-packaged, diversified alternatives basket. The constituents of each peer group are available to advisers to run their own due diligence.