(HedgeCo.Net) A recent analysis of the U.S. liquid alternatives fund universe found that two strategy types — crypto exposures and derivative income/managed futures — are taking increasingly large shares of the space. Citywire
Key observations
- Funds are tilting toward derivative-income strategies (selling options, exploiting volatility, etc) and crypto and digital-asset linked strategies as managers seek non-traditional return streams. Citywire
- These strategies differ from traditional “long equity + bond” portfolios — they aim for differentiated exposures, sometimes low correlation, sometimes tactical return sources.
- As digital assets gain legitimacy and derivatives become more sophisticated, liquid alts are adapting to include them.
Implications
- This shift underscores how “alternatives” is evolving: not just hedge funds, private equity or real estate, but more dynamic, publicly-traded strategies with alternative return drivers.
- Investors need to understand that a “liquid alt” fund may now have crypto or derivative risk embedded — which changes the risk profile.
- Manager expertise and transparency become more important: when strategies are complex (crypto, derivatives) the ability to explain and manage them is crucial.
Risks and considerations
- Crypto-linked strategies bring heightened volatility and regulatory uncertainty — different from classic “alternative” diversifiers.
- Derivative income strategies may rely on selling premium which can lead to large losses in adverse markets.
- Performance dispersion is wide: while some funds may shine, others may underperform, especially if strategy execution is weak.
Bottom line: The landscape of liquid alternatives is broadening, with derivative income and crypto exposures playing a growing role. That presents opportunity — but also demands deeper due diligence.