Old Mutual Alternative Investments is a major provider of alternative investment products and services. However, some investors have raised complaints about their experiences. This article will analyze the key issues behind investor dissatisfaction with Old Mutual’s alternative investment offerings. By understanding the inherent risks and complexities of these investments, investors can set proper expectations and make informed decisions. Complaints often arise from lack of transparency, high fees, illiquidity, and misunderstood risks. With tighter regulations and improved practices, the alternative investment industry can better serve investors while still offering unique return prospects. Making careful product selections and working closely with experienced advisors are keys to success. With knowledge and prudent actions, investors can still benefit from the diversification potential of alternative investments.
Lack of transparency leads to misaligned expectations
Many alternative investment vehicles such as hedge funds and private equity funds are complex and opaque. Unlike traditional investments in stocks and bonds, investors have limited visibility into investment strategies, portfolio holdings, and fund performance. This lack of transparency makes it difficult for investors to fully grasp the risk-return profile. Investors drawn by high expected returns may underestimate risks and overestimate liquidity. When actual results underperform expectations, some grow dissatisfied without understanding the reasons behind poor outcomes. More transparency into fund investment processes, liquidity terms, and periodic performance can help set proper expectations upfront. Investors should demand detailed information from fund managers to make informed decisions.
High fees erode net returns to investors
Alternative investments typically come with layers of high fees, including management fees, performance fees, redemption fees, and administrative fees. These fees are deducted from investment gains, reducing net returns to investors. While higher fees may be justified for skilled active management and special access, some funds charge excessive fees that become a drag on performance. The compounding impact of multi-year high fees can significantly erode long-term returns. Investors focused only on headline return figures and not net returns after fees are likely to have disappointed outcomes. Careful evaluation of fee structures and net returns is essential when selecting alternative funds or investment managers. Investors should favor funds with reasonable fee loads and alignment of incentives.
Illiquidity leaves investors unable to exit easily
Alternatives like hedge funds and private equity have limited liquidity compared to traditional investments. Investors often face lock-up periods where redemptions are restricted for months or years. Even without lockups, alternative funds may impose limits on the frequency and amount of withdrawals. This illiquidity prevents investors from accessing their capital on demand. Investor complaints can arise when liquidity needs change but invested capital remains tied up. Lock-up periods and liquidity terms should be clear upfront so investors adequately plan around potential illiquidity. For funds without lockups, managers should provide visibility into portfolio liquidity to manage redemption expectations.
Misunderstood risks lead to disappointment
Many alternative strategies take significant risks to pursue higher returns, through leverage, derivatives, concentrated positions, and illiquid assets. However, these risks are often obscured from investors. When risk exposures materialize in poor performance, investors may have unrealistic complaints. For instance, an equity long-short fund with higher volatility than expected may receive investor criticism. But such volatility is inherent to the strategy. By providing more transparency into risk exposures, fund managers can help investors embrace appropriate risk levels. Investors also carry responsibility to research and understand strategy risks. Working with experienced advisors can help evaluate risks.
While alternative investments can provide portfolio diversification benefits, they carry inherent risks and complexities that must be properly understood. By improving transparency, fees, liquidity terms, and risk disclosures, alternative investment providers can better align investor expectations with reality. Investors should also take responsibility to research products, evaluate risks, and work with experienced advisors before allocating significant capital. Understanding the nuances of alternative investments leads to prudent decisions and satisfying long-term experiences.