Alternative Mutual Funds

Fierce competition among asset managers and the desire that investors have for lower the fees in alternative investments has triggered a major increase in the alternative mutual fund category, as highlighted in this article:

This trend will continue for a decades and the back office, IT and administration implication of the movement will be interesting to follow.  DTCC/NSCC has had to become more selective in relation to what qualifies to be on the NSCC Mutual Fund service, where previously a 40-act fund currently offering daily liquidity was a shoo-in.  If the prospectus of an alternative mutual fund contains provisions for the fund suspending daily liquidity, then use of the Fund/Serv may be disallowed.

As long as NSCC AIP adoption is at a low level, many of the benefits associated with an alternative fund being structured as a 40-act fund–such as broker-control and being reported on a brokerage statement above the line–do not accrue to a non-40 act mutual fund because both the administrator and the brokers distributing the products are less likely to be fully-functional AIP users.

In the long run this pushing of boundaries by the alternative investment industry will have the impact of providing a boost to the adoption of NSCC’s fledgling fund service, AIP, as asset managers create products that can’t guarantee daily liquidity and those products do not fit on the NSCC Mutual Fund service.


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