New liquid alternatives offer added-value pay structure

The alternative mutual-funds strategies allow investors to pay only for returns that go beyond those from the market

New liquid alternatives offer added-value pay structure

Connor, Clark & Lunn Funds (CC&L Funds) has become the latest fund issuer to enter Canada’s nascent liquid-alternatives space with its launch of three alternative mutual funds.

"The recent introduction of a new, more flexible Canadian mutual fund regulatory structure allows us to offer select alternative strategies in funds that are available to all Canadian investors,” said CC&L Funds President Tim Elliott. “In these funds, our investment teams can apply a broader set of tools, which increases the probability of adding value to traditional Canadian equity, global equity and fixed income portfolios to deliver better investment outcomes in the decade to come."

Going beyond traditional long-only equity and fixed-income strategies, the three new liquid alternative funds include:

  • The CC&L Alternative Income Fund - a flexible, long-short absolute return fixed-income strategy. It aims to provide positive absolute returns over a market cycle through opportunistic investments in a diversified portfolio that’s comprised mainly of fixed-income securities.
  • The CC&L Alternative Canadian Equity Fund - combines long exposure to Canadian equities with added value from a global equity market-neutral strategy. It seeks to deliver higher return targets while keeping a risk profile that’s similar to that of long-only Canadian equity portfolios.
  • The CC&L Alternative Global Equity Fund – supplements long exposure to global equities with added value from a global equity market-neutral strategy. Like its counterpart Canadian fund, it aims for higher return targets while maintaining a similar risk profile to long-only global equity portfolios.

One thing that sets CC&L Funds’ new launches apart from rival products is its pricing structure, which runs parallel to pay-for-performance fees embraced by some active managers. According to Elliott, individual investors have historically been forced into a choice between low-cost passive exposure to market returns, or strategies that charge fees for active management on the entire portfolio even though much of its return is derived from simple market exposure.

“For our alternative equity funds, we combine low cost market exposure with fees for value added above the benchmark,” he said. “In our alternative income fund, we are aiming to provide a very different return profile than what is available in long-only bond funds, combined with a fee structure that is directly aligned with added-value.”

Given the slowdown in global growth, low bond yields, and record levels of global debt, Elliott said long-only stock and bond portfolios should expect lower returns over the next ten years. To maintain their return objectives without taking on additional risk, investors may want to embrace new solutions such as liquid alternatives.

The fund portfolios will be managed by CC&L Investment Management (CC&LIM), recognized as one of Canada’s largest managers of alternative investments. CC&LIM currently manages over $5 billion of alternative investments.


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