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By Christine Benz | 03-08-2010 03:16 PM

What Investors Should Look for in Alternatives

AQR's Cliff Asness says alternative investors should seek economically intuitive strategies with low correlation, good transparency, and reasonable fees.

Christine Benz: Assuming an investor is convinced that they want to have some alternatives in their portfolio, my advice would be to keep it to a small slice of the portfolio. What else should they thinking about? Low costs? You obviously are an evangelist about that.

Cliff Asness: Yeah. First of all, I share that advice to keep it small. It would be wonderful if there were so many great things that you could do that you could make all of your portfolio high return with no correlation. I don't believe that's the real world. Low cost is certainly one thing. The average hedge fund fees are famous.

Benz: Famously high.

Asness: Famously high, yes. See, I don't even think we need to say that, I think people would have known what I meant.

Benz: It's obvious.

Asness: They're famously high. If you find the one out of hundred genius, maybe it's worth it. But you don't find that by looking over the last five years and seeing who was the genius. It's pretty hard to find who'll be the next genius. So finding these kinds of strategies at reasonable fees is one.

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