6. manager’s financial weakness, lack of capital and/or insurance

7. manager is under-resourced: has too few staff, not good enough staff

8. too much of your time needed to monitor the manager

9. your reputation may suffer in case of adverse performance The biggest concerns, rated more as “unacceptably high” involved operational failure and staff under-resourcing. These were followed by the perceived financial weakness of a manager (see table).

Interestingly, given the current state of markets following the credit crunch, only 6 per cent rated risks associated with the use of leverage, derivatives and shorting as “unacceptably high”. Nearly 70 per cent thought these strategies were “acceptable”.

Consultants rated more highly than funds of funds in terms of sources of advice or access in alternatives manager selection. Just over half said they would use a mainstream consultant for advice and two-thirds saying they would use a specialist consultant. Only about one-third said they would use a fund of funds in place of advice form a consultant.

Comments from respondents ranged from the negative – “don’t believe that the BAAL opportunity set is in Australia; it’s overseas” – to the positive – “BAALs have the advantages of proximity for research and the regulatory and tax environment is familiar”. Glass says the response to the survey was very good because it shows investors have an openness to the use of BAALs.

“Specifically, the responses to their concerns make it clear what sort of due diligence is required from an investor’s point of view when assessing an investment in a BAAL fund,” he says.