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By Nadia Papagiannis, CFA | 07-29-2010 12:32 PM

Alternatives Are Not About Performance Chasing

Investors chasing the hot performance of alternative investment strategies instead of thinking about them as diversifiers will likely end up disappointed, says Aston/Lake Parners' Rick Lake.

Nadia Papagiannis: Hello, my name is Nadia Papagiannis. I am the Alternative Investment Strategist here at Morningstar.

And today, I have with me Rick Lake. Rick Lake is the manager of the Aston/Lake Partners LASSO Alternatives Fund. Thanks for being with us today.

Rick Lake: Thanks for inviting me.

Papagiannis: So, we're going to talk about managed futures today, but first we're going to take a step back and talk about how the landscape of alternatives funds have changed. So in the beginning, we had long/short equity managers, and how have alternatives changed since then, since you've been in this industry since the beginning, 13 years ago?

Lake: I sound like Methuselah, but the beginning of alternative mutual funds was 1997 when Congress repealed that old tax reg, that was a bit horse and buggy, and it open the door for mutual funds to use alternative strategies as an integral part of their mandate.

And the first funds back in '97 and '98 we long/short equity funds, some option hedging funds, market mutual funds and one convertible arb mutual fund.

Papagiannis: And so how has that changed in recent years?

Lake: Well, over the years the number of alternative mutual funds has grown and there was a wave of innovation over the past two or three years that brought a wide variety of long/short bond fund strategies into the mutual fund world.

So today we now have long/short global sovereign bond funds, we have long/short credit funds, we have long/short currency funds, and the managers can take advantage of all the trends and events happening in the world long or short. It's interesting one of the long/short global bond fund managers had been short Greece for the past five years, assuming that…

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