New York (HedgeCo.net) – While the market has been climbing for the last six years, the popularity of liquid alternatives has grown tremendously. After the last bear market in 2007-2009, investors were looking for investments that could withstand volatile or downward moves and that aided the growth in liquid alts.

Over the last couple of weeks, liquid alts have been put to their first real test as the market has hit its first real rough patch since the financial crisis. A recent article from InvestmentNews.com looked at how the different classes of liquid alts performed on Friday, August 21 and Monday, August 24, two of the worst days the market has seen in the last six years.

The good news is that liquid alts worked as investors would hope. On August 21, the S&P lost 3.13% while the worst performing category of liquid alts was the long/short equity group which lost 1.41% while the multi-alternative category was the next worst performer with a loss of 0.78%.

On August 24, when the S&P lost 3.94%, long/short equity liquid alts were once again the worst performers with a loss of 1.86% and multi-strategy funds lost 1.01%. Most investors in liquid alts were looking for better downside protection and that has been a key selling point for the funds. If these two days are any indication, the funds have performed as advertised.

Rick Pendergraft
Research Analyst
HedgeCoVest