Alternative funds also known as alt funds or liquid alts invest in nontraditional assets or illiquid assets and may employ alternative investment strategies. There is no standard definition for what constitutes an alt fund, but alt funds are often marketed as a way for retail to investors to gain access to hedge funds and actively managed programs that will perform well in a variety of market conditions. These Funds claim to reduce volatility, Increase diversification and produce higher returns when compared to long only equity funds and income funds while providing liquidity
Applying "Alternative funds" to Securities Exams:
Recommendations for alt funds must be based on the specific strategies employed by the fund, not merely as one overall investment. Retail communication must accurately and fairly detail each fund’s operations and objectives in line with the information in the prospectuses. FINRA is concerned that registered representatives and retail investors will not understand how these funds will react in certain market conditions or how the fund managers will approach those market conditions. These funds must be reviewed during the new product review process even if the firm has a selling agreement with the fund.