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So you've taken the plunge to learn more about alternative funds, or alts. No doubt you feel compelled in some way to find out more about these fascinating and oft-talked-about investments, and you're ready to jump in and start – or maybe not. Maybe you just want a better understanding of the unknown before you find one popping up or, worse yet, blowing up in your portfolio. Let's take a quick look at the potential reasons why you bought this book and now find yourself reading this Foreword:

● You are an avid self-directed investor who wants to know about the latest product innovations.

● You are a well-read advisor seeking to broaden the palette of investment vehicles you use to build your clients' portfolios.

● You employ the services of an advisor and/or you invest in a fund that utilizes multiple asset classes in its investment solutions, and you recently learned that liquid alts were to be part of the mix.

● You keep hearing about these so-called alts on financial media, at cocktail parties, or on the sidelines at your children's soccer games, and want some meaningful fun facts to add to the conversation.

● You're a student, and this is on the syllabus.

All these or any combinations thereof are excellent reasons to read this book. Why am I writing the Foreword, you ask? I will tell you, of course, and I think you'll find my rationale strikes a similar theme across many of the aforementioned scenarios. Like many of you, I lived through the financial crisis of 2008. I also lived through the tech bubble meltdown of 2001 and every other market downdraft dating back to 1987. That doesn't make me either a dinosaur or a neophyte, but it does make me aware of the fact that dynamics in the market have changed over time and the tools used by investors to weather such storms have had varying degrees of success and seemingly less efficacy with each new episode. Time-tested adages such as building diversified portfolios with underlying holdings that zig while others zag have fallen short. And it's not just that market dynamics seem to have evolved over the years; it's also the degree of urgency placed on those in the position of building portfolios to get it right and limit losses.

If you, too, have personally lived through all the market events mentioned – and particularly if you've lived through a few more even further back in time – you are probably not in a position to suffer the impacts of another market meltdown. You're simply too vulnerable at this stage of your savings and investing horizon to sit tight and let the corrections right themselves. You are also likely to be in need of generating income and at least keeping pace with inflation, if not rising health care costs. Stuffing mattresses and rolling over certificates of deposit (CDs) aren't very good options, yet traditional asset allocation across stocks, bonds, and cash also seems insufficient. The most recent market meltdown certainly taught us that when old-guard asset classes “correlated to one and went to zero” (which means the offsetting zigs and zags all zigged or zagged together), substantial losses were seen even in strategically designed asset allocation products incorporating the usually reliable diversification tools wielded by professional managers.

New tools are needed that are almost custom-tailored to behave in a certain way. For example, we as investors would surely benefit from a product that will diversify equity risk during a rocky equity market, or a product that has bondlike characteristics yet is designed not to follow the rest of the bond world down during a rising interest rate environment. At a high level, the implicit usefulness of such products seems too simple and too obvious to ignore. Who wouldn't want to use such vehicles in one's portfolio if – and this is a big if– they truly exist and perform as advertised?

Well, the investment management industry is nothing if not resourceful and forever inventive, and it is this zeal to create – or at least repackage – that is bringing investors just such products in an easy-to-access mutual fund form. Liquid alts give the average investor access to sophisticated strategies that had once been reserved exclusively for high-net-worth investors, so mutual funds and exchange-traded funds (ETFs) truly are “democratizing alts.” Unfortunately, the fund industry also has a tendency to blithely follow flavor-of-the-month trends in investor demand and to crank out ill-conceived efforts and rushed product designs in order to participate in the next big thing. All they need to do is label it in a compelling way, and investors may blindly buy in (Internet funds, anyone?). This is why you are reading a book like this.

For all of the foregoing reasons, my colleagues at Lipper and I believe that understanding alternatives is an important, if not critical step for investors and advisors who desire to build better diversified portfolios. With the aging demographics of the developed world, such products are a must in order for individuals to build secure retirements and protect their nest eggs. Even younger investors can benefit from products that help navigate market volatilities stemming from such newfound sources as high-frequency trading, derivative-laden structured products, and the massive ebb and flow of herd-mentality asset class gyrations – any of which can cause substantial disruptions to the normally sanguine process of putting aside part of your paycheck for your eventual retirement.

Liquid or registered alternatives are a relatively young corner of the industry and, as mentioned already, not everything that is being marketed out there as an alternative fund is well labeled or well designed. Complicating matters further is the fact that the investment industry loves to wax philosophical and craft sweeping white papers and books with Greek letters, long formulas, and big words to give the appearance that they are incredibly smart and deserving of your money. Any one of these tomes, when read by even sophisticated investors, leaves one with the feeling that this truly is the best product out there and is being run by the smartest people in the industry. An additional complication is that there are many of these products that hail from the once-sacrosanct world of hedge funds. Simply because they are run by a former or current hedge fund manager doesn't mean they have any business in your portfolio. The goal of this book is to take a third-party view of this fast-growing segment of the fund industry. The authors aren't tied to any of the major firms launching and running these funds, and they haven't been involved in any of these product designs. Furthermore, no one involved with the writing of this book stands to gain from sales of alternative investment products as a result of their being profiled in this book.

With conflicts of interest removed, what remains is a factually based reference manual that describes the major categories of what are known as liquid alternative funds with descriptions of what they are, how they are designed and managed, how they perform, and how an advisor or investor might consider using them in a portfolio. This book offers a simple, practical guide that helps investors benefit from their newfound access to advanced strategies. This brings power back to the investor and is the democratization of alternatives.

Robert Jenkins

Global Head of Research at Thomson Reuters Lipper