V2 Capital Preps Liquid Alternatives Fund

May 14 2014 | 6:27pm ET

The hedge fund space is changing rapidly, no more so than in the area of liquid alternatives—the term for hedge fund strategies that have been repackaged into 40 Act mutual fund structures.

One proponent of the liquid alternatives space is Victor Viner, president of V2 Capital, an investment advisory firm he founded in 2004 that specializes in trading volatility-based equity derivative strategies.

“The liquid alternatives space is the fastest growing alternative asset class,” Viner told FINalternatives on the sidelines of the SALT Conference, which is taking place in Las Vegas this week. “You are getting a flat fee, you have transparency, you have daily liquidity and they are regulated.”

Given Viner’s enthusiasm for the burgeoning asset class, it is no surprise that his firm, which has approximately $500 million in assets under management, is gearing up to launch a 40 Act fund later this year. The new vehicle will mirror the strategy of the firm’s existing hedge fund—which is a long/short equity derivatives fund—but will be listed and sold as a mutual fund, allowing for a whole new pool of potential investors.

McKinsey & Company predicts that alternatives’ share of the mutual fund market will double between 2010 and 2015 (reaching $900 billion), and liquid alternatives are expected to account for nearly one quarter of all retail revenue by the end of that period.

Despite the potential to open up hedge fund strategies to a whole new market, one of the criticisms of liquid alternatives products is that they are not really mirroring hedge fund strategies. Some, but not all, hedge funds must make small changes in order to become 40 Act compliant. Viner’s firm—which does not charge performance fees—doesn’t have this problem.

“What we’ve done today [in our hedge fund] we can do in a 40 Act without changing anything,” explained the Chicago native, who counts co-founder of Home Depot Ken Langone not only among his investors, but also as a stakeholder in his asset management firm.

In addition to the transparency offered by liquid alternative funds, Viner is also drawn to the structure because of the affordable fees. It is Viner’s experience as an investor as well as a businessman which has likely led to his belief that investors are often not getting their money’s worth.

“In any business to be successful you have to do right by your customers,” which in the case of asset management are the investors. “A lot of managers are highly correlated to the S&P and they are producing Beta, but they are still charging hedge fund fees,” said Viner.

Viner believes that with the advent of liquid alternatives, hedge funds will come under pressure to lower their fees.

“I think there is going to be a shake-up,” he said, adding that in addition to lower fees, he thinks the industry will contract in terms of the number of firms, while at the same time assets under management will continue to grow.

“The good news is that with the firms that thrive, there is going to be a fair exchange – [investors] are going to get a fair return for what they pay.”


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