Cliffwater and Virtus Investment Partners are joining forces to develop a series of multistrategy, multimanager alternative mutual funds that will be managed under a new venture, Cliffwater Investments.
The venture will take advantage of Cliffwater's research into more than 4,000 alternative-investment managers and their expertise in portfolio construction.
The new funds, which were filed this week with the Securities and Exchange Commission, include the Virtus Alternative Income Solution Fund, the Virtus Alternative Real Assets Solution Fund and the Virtus Alternative Total Solution Fund.
Each portfolio will be made up of allocations to multiple
alternative strategies from hedge fund managers that have been
evaluated by Cliffwater, a firm with more than $70 billion under advisement.
Virtus, which was spun off from The Phoenix Cos. in 2008 and debuted as a public company in 2009, has $52.7 billion under management.
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The new funds are expected to be available within the next three months. Each fund will have between six and eight subadvisers managing pieces of the portfolios.
The funds, which will be managed specifically for financial advisers, will aim to fill gaps in the fast-growing list of liquid-alternative-investment products, according to George Aylward, Virtus' president and chief executive.
“There is a growing understanding among financial advisers that portfolios constructed primarily with traditional equity and fixed-income securities are reliant on an ongoing bull market and low interest rate environment to address their clients' needs,” he said. “In order to meet their long-term goals, investors need to consider alternative strategies that typically have been available only to institutional investors and high-net-worth clients.”
(See also: Why alternatives, why now)
The Virtus Alternative Income Solution Fund will focus on capturing current yield from a diversified combination of income producing securities.
The Virtus Alternative Real Assets Solution Fund is designed to help investors protect purchasing power by producing a total return that exceeds the rate of inflation over full market cycles.
The Virtus Alternative Total Solution Fund will combine income-producing, real asset and hedge fund strategies with the objective of generating a positive total return in various market cycles while maintaining a low correlation to traditional equity and fixed-income markets.
“As we look at the market, we see a disconnect between the needs and what is available to retail-class investors,” Mr. Aylward said. “But institutional investors have for a long time taken advantage of alternative investments.”
Although company executives acknowledge that liquid alternative strategies aren't a new concept, the Cliffwater approach might be.
“There are a lot of alternative mutual funds coming to the marketplace, but are they satisfying investor needs?” asked Jeff Cerutti, executive vice president of retail distribution at Virtus.
“There are 16 different alternative categories on Morningstar [Inc.], but alternatives are still a very undefined space,” he said. “What makes us different is we're partnering with a consulting firm with an open architecture and no bias from one product to another.”
