Alternative Investments
Alternative Investments cover a broad array of potential strategies and asset classes. Alternatives can play a role in a portfolio by either reducing the expected level of risk or increasing expected return. The assets and strategies that fall into this category have historically had low correlations to more traditional asset classes.

Source: Baird’s Advisory Services Research, 2010
Despite their benefits, historically alternatives have not been investable for individuals due to a number of reasons:
- Access: In the past alternatives have only been accessible to accredited investors and have had a $5 million minimum. In order to attain proper diversification across strategies, an individual would need at least $25 million of investable assets making alternatives only suitable for ultra-high net worth individuals. “Fund of fund strategies” are available at lower minimums, but come with some disadvantages. Today the Flat Fee Portfolios Alternative Investments Strategy now gives average investors access to this investment.
- Expense: In addition to being difficult to access, alternative investments have historically been expensive. Most alternative managers are compensated under a “2 & 20” structure. This means there is a 2% management fee plus the manager takes 20% of the profits over a determined benchmark. If an investor is accessing alternative investments in a "fund of funds" structure, the manager usually adds “1 & 10” to the “2 & 20”, meaning they charge a 1% management fee and receive a 10% incentive fee on top of what the underlying investment manager receives. "Fund of funds" investors usually use an advisor who may add his own fee on top of everything. Adding it all together, the investor pays fees on top of fees on top of fees, leaving little in the way of return. In contrast, the Flat Fee Portfolios Alternative Investments Strategy is constructed to allow the investor to reap the benefits of alternatives without losing the lion’s share of returns to fees.
- Illiquidity: Alternative investment strategies are typically illiquid. This usually means a lock-up period of 3 years or more. After the lock-up expires the investment often only has liquidity during quarterly redemption periods. Unlike these investments, the Flat Fee Portfolios Alternative Investments Strategy provides investors with daily liquidity.
Flat Fee Portfolios Alternative Investments Strategy
Flat Fee Portfolios provides the diversification benefits of alternatives while addressing the primary drawbacks discussed above. Our portfolio is comprised entirely of ‘40 Act mutual funds with daily liquidity and low minimums. Furthermore, the average internal expense for the funds we use is less than 1.5%. Alternative strategies we consider are:
- Long/Short Equity
- Merger Arbitrage
- Convertibles
- Hedge Fund Strategies
- Global Macro Allocation Funds
- Managed Futures
Flat Fee Portfolios performs extensive initial and ongoing due diligence on the underlying mangers and strategies. The portfolio is designed to be a low volatility, low correlation compliment to a low-cost passive strategy. Alternative Investments may be right for you if:
- You are looking for ways to increase the level of diversification in your portfolio
- You are looking to decrease expected volatility by adding lower correlated investments to your portfolio




