The Securities and Exchange Commission is coming for alternative mutual funds.
Bloomberg Businessweek reported that the U.S. regulator is planning to test around 25 alternative mutual funds that utilize riskier hedge fund strategies over the next several months to make sure they comply with leverage and liquidity rules.
The SEC will look at four types of alternative mutual funds: non-traditional bond funds, which make up about half of the total assets in the segment; long-short equity funds; multi-alternative funds and market-neutral funds.
In recent months, a growing list of alternative mutual funds such as Context Asset Management, Meritage Capital and Loeb King Capital Management have launched mutual funds that employ a range of hedge fund and alternative strategies. Alternative mutual funds typically generate positive absolute returns and income with lower volatility than other traditional investment strategies.