Frequently asked questions about alternative investments

Alternative investments, also known as alternatives or alts, can be generally defined as investments distinct from traditional holdings, such as stocks, bonds, and cash. The term "alternative investments" can cover a diverse range of asset types and investment strategies, including private equity, private credit, real assets, digital assets, and liquid alternatives.

These alternative asset types have distinct characteristics and can play unique roles in a portfolio for investors seeking to enhance returns, manage risk, or improve diversification.

There are many ways in which alternative investments may differ from traditional investments:

• Eligibility: Liquid alternatives are generally available to most investors. However, private market alternatives require investors to have a certain level of income, net worth, or hold specific financial licensures to be eligible to invest.
• Complexity: Because alternative investments can have more complex structures when compared with traditional investments, it can be more challenging for investors to evaluate the details of an alternative investment opportunity.
• Liquidity: Different alternative investments offer varying levels of liquidity, which refers to how easily an investment can be sold. Many alternative investments can be subject to a "lock-up period" of a number of years, during which time the investment cannot be sold. Certain funds have "intermittent liquidity," which means that they may be able to be redeemed during tender windows or repurchase periods. Liquid alternatives, however, can generally be bought and sold at the investor’s discretion.
• Regulations: Alternatives may be subject to unique regulatory requirements, and, although they're regulated by the Securities and Exchange Commission (SEC), they can be exempt from registration with the SEC. This is one reason alternatives have historically only been available to more sophisticated qualified institutional investors.
• Risk: Alternative investments often present different types of risk than those of traditional investments. Many of these risks can be tied to specific characteristics of alternatives and their specific investment strategy. However, this additional risk may be accompanied by higher return potential.
• Fees: Some alternatives may have fee structures that differ from traditional investments, so it may be more difficult to determine exactly what your expenses may be. In many cases, the fees and expenses may be higher than those associated with more traditional investments.
• Funding: Alternatives can be subject to more complex funding processes, such as subscriptions and capital calls, which can complicate portfolio construction, rebalancing, and risk management.
• Tax reporting: Many alternatives have a standard Form 1099 tax-reporting obligation; however some alternatives may have a different or more complex tax-filing process. This in turn can delay or complicate tax filing, particularly because tax forms related to these investments, such as Schedule K-1s, tend to arrive later than the 1099s investors usually receive from traditional investments. This may require the taxpayer to apply for a tax-filing extension.
• Minimum investments: Private alternatives generally have higher minimum investments when compared to semi-liquid/liquid alternatives and traditional investments, which typically have no or lower minimum investment requirements.

Public markets are shrinking, with the number of publicly traded companies declining by more than 40% over a 25 year period.* This has resulted in investors chasing a shrinking number of investment opportunities across traditional asset classes. In addition, private companies are playing an increasingly important role in today's economy, representing significant growth potential. Dedicating some portion of a portfolio to alternatives could help you take advantage of this growth potential.

Alternative investments can provide access to strategies that traditional asset classes, such as stocks and bonds, or traditional "buy-and-hold" strategies, cannot, making them more appealing to sophisticated investors. Alternatives typically have a low correlation to traditional assets, meaning that they tend to respond differently to various market conditions, which can improve a portfolio's diversification and help with risk management. For example, some strategies, such as middle market direct lending or real assets, may be better able to weather economic conditions, such as inflation, than traditional assets. In addition, although some alternative investments may sometimes come with higher risk than traditional investments , they may also offer higher return potential.

Liquidity refers to how easily an investment can be sold. Alternative investments are offered in a range of liquidity levels, in which the ability to sell or redeem an investment can be limited. The liquidity of an investment can be considered across two dimensions—the liquidity of the fund (i.e., ability to sell) and the liquidity of the underlying assets within the fund. When considering alternative investments, it's important to understand that each type of investment may have differences in the amount of liquidity it provides.

• Liquid alternatives Liquid alternatives usually invest in securities that primarily trade in public markets. Structured as ETFs and mutual funds, they are valued on a daily basis and can be sold at your discretion based on the current NAV or market price.
• Interval funds. Interval funds are a type of closed-end fund that continuously offer shares and provide periodic liquidity through periodic share repurchase programs, often called “repurchase periods.” Unlike funds that offer daily liquidity, investors can typically redeem (or sell) shares only on a pre-determined schedule such as quarterly, and the fund generally repurchases only 5% to 25% of outstanding shares during each redemption offer. Because they offer limited liquidity, interval funds may provide access to less-liquid underlying assets while offering the potential for higher returns, referred to as an “illiquidity premium.” There is no guarantee that an investor will be able to sell all or any of their shares at a given time. At the same time, they may offer investors more liquidity than is typically available through investment in some private alternative funds.
• Private alternatives. These funds invest in assets in private markets and are available to investors who meet certain eligibility requirements. Investors may have limited or no ability to redeem their investments for extended periods of time, depending on the investment structure. Private evergreen funds such as non-traded Real Estate Investment Trusts (REITs) and non-traded Business Development Companies (BDCs), for example, may also offer periodic liquidity, while traditional private drawdown funds have long lockups and limited redemption opportunities, if any.

Liquidity may be available only through redemption mechanisms or secondary market transactions. In exchange for tying up capital for longer periods of time, illiquid alternatives typically offer the potential for higher returns. This is referred to as an "illiquidity premium."

Before investing in a fund, please review the risk disclosures and liquidity terms, which are described in each fund’s prospectus or other offering documents.

At one time, this may have been true. But over time, access to alternative investments has increased significantly, allowing more individual investors to pursue some of these types of investment opportunities.

Some of the primary asset classes for alternative investments include (but are not limited to):

• Private alternatives. Nonpublic alternative investment funds are offered privately to a limited number of qualified investors. Private alternatives are offered across several asset classes, such as private equity, private credit, and private real assets. Typically, each asset class may help you pursue one or more strategic objectives, such as capital appreciation, diversification, income generation, or risk management.
• Interval funds. Interval funds typically seek to invest in public (e.g. stocks and bonds) and private markets via investments in asset classes such as private credit, private equity and private real assets. Because interval funds invest in both liquid and less-liquid investments, they offer periodic, limited opportunities for investors to redeem or sell shares at scheduled intervals. During these repurchase periods, the fund offers to buy back a set percentage of outstanding shares at net asset value (NAV). Because interval funds do not offer daily redemptions, they can hold less-liquid assets while still giving investors periodic—though not continuous—opportunities to sell shares. There is no guarantee that an investor will be able to sell all or any of their shares at a given time.
• Liquid alternatives. Liquid alternative funds seek to enhance returns, diversify and/or provide risk mitigation by investing in public markets, such as equities, fixed income, commodities, currencies, and options, or in derivatives. Unlike traditional buy-and-hold strategies, liquid alternatives usually have the flexibility to take both long and short positions, the latter seeking to benefit from declining asset values.
• Digital assets. Seek to provide growth and diversification by investing in digital assets, such as cryptocurrencies and crypto funds, and are designed to work as mediums of exchange that are stored on a decentralized ledger known as a blockchain.

In addition to investor eligibility guidelines, each fund comes with its own risks, considerations, and requirements related to investor suitability. As it relates to each individual fund offering, refer to the fund documentation for specifics on risks and eligibility.

In general, investors should consider things such as:

• Comfort with risk and ability to withstand changes to the value of an investment
• Individual goals and time horizon
• Specific cash flow needs and liquidity concerns
• Overall investment goals and how the remainder of their portfolio is constructed
• Investment knowledge and experience

A tender window, or repurchase period, is a feature of many intermittent liquidity funds during which time the fund offers to repurchase a set number of shares. During this period, investors can submit a request for the fund to redeem either a portion or all of their shares. This request will be satisfied at the fund's discretion.

While you may have many choices in financial providers, Fidelity is highly qualified to offer alternative investment opportunities for a number of reasons:

• Proven track record. Trusted by millions of investors for over 75 years, Fidelity has been the market leader in active and passive asset management, powered by a research-driven, outcome-oriented culture.
• Deep experience. Our dedicated and experienced team conduct deep research of public and private assets across a broad array of asset classes in an effort to uncover attractive investment opportunities.
• A wide range of investment choices. We offer alternative investments alongside a wide range of investments, ensuring that alternatives play an important role in a fully diversified portfolio that also includes traditional asset classes. Fidelity offers specialized capabilities across private equity, private credit, real assets, liquid alternatives, and digital assets.
• Opportunities to grow knowledge. From insightful articles and videos, to conversations with product specialists or advisors, Fidelity is dedicated to helping investors understand the strategies as well as the potential risks and rewards of investing in alternatives.
• One platform to invest and monitor. We offer customers a platform to manage their entire investment portfolio, so you can monitor your growth across all of your investments, from alternatives to stocks to bonds to CDs and cash.

Fidelity offers a range of alternative investment asset classes, including private equity, private credit, core real estate, digital assets, and liquid alternatives. Keep in mind that alternative investment opportunities at Fidelity can change over time.

Private alternative investments (a.k.a. alternatives in private markets, private assets, private funds, private placements, or private alternatives) are nonpublic alternative investments offered privately to a limited number of qualified investors. Private alternatives are offered across several asset classes, such as private equity, private credit, and real assets. Typically, each asset class may help you pursue one or more strategic objectives, such as capital appreciation, diversification, income generation, or risk management. Here are some key considerations when exploring private market alternatives:

• Unique investments. Because these types of alternative investments often invest in private markets or pursue unique investment opportunities, there may be increased risk for certain strategies, although investors taking on that risk may be compensated by higher reward potential.
• Liquidity limitations. Some private market alternative investments are less liquid than traditional investments, which means investors may have no access to the money theyve invested, or any potential profits, often for a period of many years. This is often referred to as a “lock-up period.” In cases like tender offer funds or intermittent liquidity funds, there may be limited windows during which investors can purchase or redeem shares.
• Illiquidity premium. In exchange for tying up capital for longer periods of time, illiquid alternatives typically offer the potential for higher returns, which is often referred to as the "illiquidity premium."
• Performance monitoring. It can be more difficult to evaluate the performance of private market alternatives vs. traditional investments, as the assets held by the funds are valued far less frequently and may have limited or no past performance data. Also, as private investments, they don’t have the same financial disclosure requirements as liquid alternatives.

When investing in private market alternatives at Fidelity, investors are typically required to meet the eligibility criteria for a Qualified Purchaser. This standard may vary from fund to fund, and investors must attest in writing that they meet at least one of the criteria of the definitions listed below in order to be eligible to invest in the fund (along with other suitability requirements).

Qualified Purchaser

• An individual who alone or with a spousal equivalent, owns at least $5,000,000 in investments
• A revocable trust with a grantor who owns $5,000,000 or more in investments
• A corporation, limited liability company, or partnership whose securities are beneficially owned exclusively by Qualified Purchasers
• An entity that owns $5,000,000 or more in net investments and that is owned directly or indirectly by or for two or more natural persons who are related as siblings or spouses (including former spouses) or direct lineal descendants by birth or adoption
• Any person or entity, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, $25,000,000 or more in investments
• Any trust not covered by the foregoing definitions and that was not formed for the specific purpose of acquiring the securities offered as to which the trustee (or other person authorized to make decisions with respect to the trust), and each settlor or other person who has contributed assets to the trust, is a Qualified Purchaser

Many alternatives accessing public markets, such as ETFs and mutual funds, use a standard Form 1099 to report income for tax purposes. However, some alts may use a different or more complex tax form. This in turn can delay or complicate tax filing, particularly because tax forms related to these investments, such as Schedule K-1s, tend to arrive later than the 1099s investors usually receive from traditional investments. This may require that the taxpayer apply for a tax-filing extension.

Generally, private investments are subject to securities laws but do not have to be registered with the SEC as long as they conform to certain regulatory exemptions. This exemption prevents general solicitation or advertising to market the private investment.

Different funds report on fund performance in different time increments. Funds may provide reporting at intervals less frequently than mutual funds, depending on the type of fund. Investors should expect to receive information that may include performance measures such as net asset value (NAV), internal rate of return (IRR), net multiple (total value of distributions and NAV divided by total contributions), or net return.

A limited partnership (LP) is one possible way an alternative investment can be structured. It consists of a general partner (GP), who’s responsible for the day-to-day management of the fund, and investors in the fund, who serve as its limited partners, often referred to as “LPs.” The GP is responsible for making investment decisions related to the fund, soliciting subscriptions to the fund to potential investors, determining the status of any subscription requests, and issuing any capital calls.

Private market alternative investments are purchased through a process called a subscription, which is an agreement between the fund sponsor and the investor. As part of this agreement, the investor commits to investing a specific amount of money. These commitments may be invested at the time of subscription or called over time.

In a private fund operating as a general partnership, the fund manager or general partner will announce a "close date," which represents the end of a fundraising period during which the fund solicits limited partners. Once the close date has passed, investors will receive a "capital call," or a request for funds. Note that some funds may have multiple close dates.

A capital call is a request by a fund manager or general partner to collect capital from its committed investors. A potential aspect of the subscription, or the agreement in a private investment, is for the client to provide some of the promised money up front— the paid-in capital—with the balance provided upon request once the fund manager issues a capital call. Capital calls may be issued on a schedule, or whenever the fund manager requires those funds for the purpose of making investments.

A fund manager or general partner, having identified opportunities in which to invest, will begin putting investors money to work during the "investment period." The money will remain invested throughout this period, which will vary depending on the nature of the offering and the nature of the target investments. Note that during this time, investors in a private fund will not have access to the capital theyve committed unless the fund permits withdrawal of all or a portion of an investment after a prescribed period of time as noted in the funds offering documents.

At some point during the investment period, the fund manager or general partner may choose to liquidate investments in the fund, at which time capital will be returned to investors. The amount received will depend on the amount of the initial investment and the profitability of any investments made by the fund. Please note that the ability to liquidate any investment is dependent on market conditions and the performance of the fund, and is not guaranteed.

Fidelity customers who want to learn how to invest in private market alternatives are encouraged to schedule an appointment to confirm their eligibility, get answers to their questions, and, if appropriate, gain access to private market alternative investment opportunities.

An interval fund is a specific type of closed-end mutual fund that offers the ability to invest in less-liquid assets such as private credit. Unlike with traditional, open-end mutual funds or ETFs, which allow investors to redeem shares on a daily basis, investors in interval funds can only attempt to redeem their shares—or sell them back to the fund—periodically, on a specified redemption schedule. 

Accessing alternative investments through an interval fund may offer several potential benefits and risks.

Benefits:

• Access to public and private markets. An interval fund's unique investment structure can support a more flexible investment strategy across both public and private markets. Without the need to meet daily redemption requests, managers have greater flexibility in their investment decisions, allowing them to make allocations to less-liquid securities, including alternative asset classes such as private credit, private equity, and private real estate. This access can enhance return potential and improve diversification by introducing exposures that may be less correlated with traditional investments, such as stocks, bonds, and cash.
• Help achieve investment objectives. The structure of an interval fund enables exposure to asset classes that can help long-term investors achieve their investment objectives, such as the potential to pursue growth, generate income, improve diversification, manage risk and/or balance growth with income.
• Investment requirements. Unlike private alternatives, interval funds do not require investors to satisfy eligibility requirements relating to their income, net worth, or investable assets.
• Familiar tax reporting. As with a traditional mutual fund or ETF, investors will receive a Form 1099 from the IRS, a more familiar and simpler tax-reporting process than some private alternative funds.
• Easier to buy. Interval funds can be purchased through a standard trade ticket, avoiding the subscription process often required for private alternative investments.

Risks:

• Higher Risk. Since interval funds can invest in less-liquid alternative assets, they may carry higher levels of liquidity risk.
• Complexity. Evaluating interval funds can be relatively complex. A higher degree of investment analysis may be required before investing.
• Periodic liquidity. Interval funds offer periodic liquidity through repurchase offers at specified intervals that are typically quarterly but could be scheduled on an annual, semi-annual, or monthly basis. According to the terms of most interval funds, a fund will generally offer to repurchase, or “buy back,” anywhere between 5% and 25% of their outstanding shares. There is no guarantee that an investor will be able to sell their shares at a given time, or that they will have their entire redemption request fulfilled.
• Fees. Interval funds may have higher fees than mutual funds and ETFs. These fees may result in relatively higher costs for investors.

Interval funds have investment minimums. Generally, their investment minimums tend to be higher than traditional 40 Act funds, like mutual funds and ETFs, and lower than private funds. 

Due to their ability to invest in less-liquid assets, interval funds tend to invest in both private markets, such as private credit, private equity, and real assets, as well as public markets in equity, fixed income, commodities, and other asset classes.

Mutual funds, ETFs, and interval funds are similar in that they all pool capital to build an investment portfolio. Mutual funds and interval funds are priced once daily at their net asset value (NAV), while ETFs trade throughout the day at market prices. Like traditional mutual funds and ETFs, interval funds are offered continuously, enabling investors to purchase shares whenever the market is open. For purposes of tax reporting, interval funds provide investors with a Form 1099 to report investment income, similar to what you'd receive from mutual funds or ETF.

However, there are some important differences:

• Mutual funds and ETFs offer daily liquidity. ETF shares can be bought and sold throughout the trading day, while mutual fund shares are purchased or redeemed at the end-of-day NAV. Interval funds offer more limited liquidity. Investors can redeem only a portion of their of shares during specific periods, often referred to as repurchase windows. There is no guarantee that an investor will be able to sell all or any of their shares at a given time.
• Mutual funds and ETFs cannot hold more than 15% of their assets in illiquid investments, such as private real estate, private equity, and private credit. Interval funds, by contrast, are not subject to this cap and hold significantly higher allocations, about 30% on average, in illiquid assets, based on Morningstar and SEC data. Source: Morningstar's Guide to Interval Funds, June 2024.

Interval funds are a type of closed-end fund but differ significantly from exchange-listed, closed-end funds in several ways:

• Unlisted vs. listed shares. While interval funds are continuously offered (e.g., they can be purchased daily during market hours), they are not listed on an exchange. Exchange-listed, closed-end funds are typically issued through a one-time, initial public offering (IPO) and trade on an exchange.
• Net asset value premiums and discounts. Interval funds are priced at the fund's daily net asset value (NAV), while exchange-listed, closed-end funds can trade at a premium or discount to their NAV.
• Trading frequency. Interval funds can only be redeemed periodically (e.g., quarterly or annually) according to the fund's repurchase schedule. There is no guarantee that an investor will be able to sell all or any of their shares at a given time. There is no guarantee that an investor will be able to sell all or any of their shares at a given time. Shares of listed closed-end funds are traded throughout the day.

Interval funds, non-traded closed-end funds, and private drawdown funds all provide access to alternative investments but differ in how investors can access liquidity.

• Interval funds. Required to provide periodic liquidity through scheduled repurchase offers, often quarterly. Investors may request to sell shares during these windows, up to preset repurchase limits. There is no guarantee that an investor will be able to sell all or any of their shares at a given time.
• Non-traded closed end funds, such as non-traded REITs and non-traded BDCs. These funds also offer periodic liquidity through scheduled repurchase offers, often quarterly. However, unlike interval funds, these funds have the option to suspend repurchases. Investors may request to sell shares during these windows, up to preset repurchase limits.
• Private drawdown funds. These investments do not offer redemptions, rather proceeds are returned over the life of the fund via distributions.

Before investing, it is important to consider an interval fund's unique characteristics. As with any investment, please refer to a fund's prospectus for important information on liquidity terms and risk.

• Investment opportunities. The fund manager pools capital from investors and begins to search for investment opportunities. The manager has the flexibility to look at both liquid and less-liquid options, such as private credit, private equity, and private real estate. This flexibility allows the fund manager to pursue enhanced returns and diversification without the need to manage daily redemption requests.
• Periodic liquidity. Interval funds offer periodic liquidity through repurchase offers at specified intervals that are typically quarterly but could be scheduled on an annual, semiannual, or monthly basis.
• Repurchase programs. Interval funds are required to provide share repurchase programs that allow you to redeem a portion of your investment. Investors can sell their shares back to the fund only at certain intervals and thresholds, as specified in the fund's prospectus.
• Redemption requests. During a repurchase window, you may have the option of selling some or all your shares back to the fund through a redemption request. You are not required to sell or redeem shares. According to the terms of most interval funds, a fund will generally offer to repurchase, or “buy back,” anywhere between 5% and 25% of their outstanding shares. The amount you're able to redeem will depend on the number of shares other investors in the fund wish to redeem. For example, if the fund offers to repurchase 10% of outstanding shares, and each investor submits a redemption request for 20% of their shares, each investor may only be able to redeem half of the shares they've requested. There is no guarantee that an investor will be able to sell all or any of their shares at a given time.
• Shares redeemed at Net Asset Value (NAV), with certain limits. During a repurchase offer, the fund buys back shares at the NAV on the day of the repurchase. NAV is a measure that calculates the value of a fund. Interval funds can specify a limit to repurchase during any single interval, so if the repurchase requests from investors exceed the repurchase limit, their repurchase amounts will be prorated. There is no guarantee that an investor will be able to sell all or any of their shares at a given time.

1. Generally, to redeem shares of an interval fund, the fund sends a repurchase notice to investors at least 21 days in advance of the repurchase window that outlines the details of the process, which includes the repurchase request submission deadline and the actual pricing date.
2. Investors submit their repurchase requests before the repurchase request deadline to redeem shares.
3. Investors in the interval fund are permitted to withdraw or modify their repurchase request up until, but not after, the repurchase request deadline.
4. An interval fund is required to repurchase at least 5% of its shares on a periodic basis.
5. If repurchase requests exceed the maximum percentage of outstanding shares the fund has offered to repurchase for that interval, the fund will redeem shares on a prorated basis.

Note: Each fund has its own repurchase schedule. There is no guarantee that an investor will be able to sell their shares at a given time, or that they will have their entire redemption request fulfilled.

Interval funds allow investors to redeem shares at specified intervals that may be monthly, quarterly, semiannually, or annually. The repurchase schedule is outlined in each fund's prospectus. There is no guarantee that an investor will be able to sell all or any of their shares at a given time.

A repurchase period is a defined period when a fund offers to buy back a certain amount of its shares. How much investors can redeem, and whether requests are limited or prorated, depends on the structure of the investment vehicle. There is no guarantee that an investor will be able to sell all or any of their shares at a given time. To understand the repurchase process, investors should carefully review the fund's prospectus. 

In addition to many of the risks associated with traditional investments—like stocks, bonds, or cash—accessing alternative investments through an interval fund can have unique risks and considerations:

• Higher risk. Since interval funds can invest in less-liquid, alternative assets, such as private equity, real estate, and debt instruments, these funds may carry higher levels of risk than traditional investments. However, they may also offer higher return potential.
• Complexity. Evaluating interval funds, like other alternative investment opportunities, can be complex. A high degree of investment analysis may be required before investing.
• Periodic liquidity. Interval funds offer periodic liquidity through repurchase offers at specified intervals that are typically quarterly but could be scheduled on an annual, semi-annual, or monthly basis. According to the terms of most interval funds, a fund will generally offer to repurchase, or “buy back,” anywhere between 5% and 25% of their outstanding shares. There is no guarantee that an investor will be able to sell their shares at a given time, or that they will have their entire redemption request fulfilled.
• Fees. Interval funds, like other alternatives, may have fees and fee structures that differ from traditional investments. Interval fund fees can include management fees, sales loads, performance fees, redemption fees, and operational costs. These fees may result in higher costs for investors. The specific fees and expenses associated with any particular fund can differ. Investors who are considering a specific interval fund should refer to the fund prospectus for more information.
• Higher investment minimums. Compared to traditional investments, interval funds tend to have higher investment minimums. Offered at Net Asset Value (NAV). Interval funds are always offered at the NAV, the per-share value of a fund's assets minus its liabilities, and can continuously offer the purchase of shares. This differs from closed-end funds, which can trade at a discount or premium to NAV.

Unlike investors in some private funds, interval fund investors typically don't need to satisfy eligibility requirements relating to their income, net worth, or investable assets.

Many of the fees associated with interval funds are reflected in the fund's expense ratio, which represents the annual operating expenses investors pay as a percentage of assets.

• Management fee. This is a fee paid to the fund's management team for its services. It is usually a percentage of the fund's assets.
• Sales loads. These are fees charged when you buy (front-end load) or sell (back-end load) shares of the fund. They compensate brokers and financial advisors for their services.
• Administrator and accounting fees. These fees cover the costs of administrative services and accounting for the fund. They are included in the overall operational costs, which are part of the expense ratio.
• Redemption fees. These fees are charged when investors sell their shares back to the fund during redemption periods. They help discourage short-term trading and cover the costs of the redemption process.
• Operational costs. These include various expenses necessary to run the fund, such as legal fees, custodial fees, and other miscellaneous costs. These costs are also part of the expense ratio.

These fees reflect the complexity and operational demands of managing interval funds. It's important to note that these higher fees can significantly increase the cost of investing and may impact the profit potential of an investment.

Liquid alternatives seek to enhance returns, diversify and/or provide risk mitigation by investing in public markets, such as equities, fixed income, commodities, currencies, and options, or in derivatives tied to the performance of those markets. Unlike traditional buy-and-hold strategies, liquid alternatives usually have the flexibility to take both long and short positions, the latter seeking to benefit from declining asset values. Liquid alternatives are typically offered in liquid structures, such as mutual funds and ETFs. They pursue a range of strategies, such as long-short equity, relative value, options-based, and global macro strategies.

There are several potential benefits to investing in liquid alternatives:

• Pursue investment objectives: Liquid alternatives may help grow your wealth, diversify your portfolio and manage risk by generating returns that may be less correlated to traditional markets.
• Flexibility: Unlike traditional "buy and hold" strategies, liquid alternatives have the flexibility to take both long and short positions and use derivatives to pursue a variety of risk and return objectives.
• Structure: They are typically structured like mutual funds or ETFs and can generally be bought and sold daily.
• Transparency: These investments trade in public markets and provide regular updates on their performance, holdings, and strategies.

It’s also important to understand the risks with investing in liquid alternatives. Here are some key factors to keep in mind:

• Market impact: Like all investments, liquid alternatives are subject to market fluctuations, which can affect their value.
• Complexity: Some liquid alternatives may pursue complex strategies, and it may be difficult to understand how they can affect your overall portfolio.
• Performance: Liquid alternatives, like any type of investment, can experience periods of underperformance.
• Leverage: Many liquid alternatives use leverage to enhance returns, which can also amplify losses.

Each fund and strategy may present their own unique risks. Before investing carefully review each funds prospectus and weigh the risks against your financial goals.

When considering investing in liquid alternatives, it’s important to understand the associated risks. Here are some key factors to keep in mind:

• Market impact: Like all investments, liquid alternatives are subject to market fluctuations, which can affect their value.
• Complexity: Some liquid alternatives may pursue complex strategies, and it may be difficult to understand how they can affect your overall portfolio.
• Performance: Liquid alternatives, like any type of investment, can experience periods of underperformance.
• Leverage: Many liquid alternatives use leverage to enhance returns, which can also amplify losses.

Each fund and strategy may present their own unique risks. Before investing carefully review each funds' prospectus and weigh the risks against your financial goals.

Liquid alternative funds can be categorized by their underlying investment styles. Common types include:

• Equity market neutral: Seeks to generate attractive returns while minimizing the impact of market direction by balancing long and short equity positions.
• Long-short equity: Seeks to generate returns by taking long positions in stocks the fund expects to increase in value and short positions in stocks the fund expects to decrease in value.
• Derivative income: Offer investors a straightforward way to remain invested in the market while seeking to reshape the risk/return profile of their equity allocations to incorporate complementary defensive or income-oriented features.
• Macro trading: Uses analysis of the macroeconomic, political, and market environment to try to capitalize on predicted movements in financial markets.
• Event-driven: Seeks to exploit mispricing that can occur around corporate events, such as mergers, acquisitions, bankruptcies, and earnings calls.
• Multi-strategy: Employs a combination of different strategies that seek to manage risk and potentially enhance returns.

Each fund and strategy may present their own unique risks. Before investing carefully review each funds prospectus and weigh the risks against your financial goals.

View full list of liquid alternative styles

Liquid alternatives may help diversify your portfolio, enhance returns, generate income, and/or help manage risk.

The liquidity of an investment can be considered across two dimensions—the liquidity of the fund (i.e., ability to sell or buy an investment) and the liquidity of the underlying assets within the fund.

As the name implies, liquid alternatives are generally considered to be the most liquid type of alternative because they primarily invest in securities that trade in public markets, are generally priced daily, and can be sold at your discretion based on the current market value, providing greater flexibility.

Additionally, these funds are typically offered within a traditional ETF or mutual fund structure that provides investors the flexibility to buy and sell their investments on a daily or even intraday basis.

Of course, before investing in a fund, investors should carefully review the risk disclosures and liquidity terms which are described in the funds prospectus or other offering documents.

Placing an order for a Liquid Alternatives mutual fund or ETF requires investors to execute Fidelity's Designated Investments Agreement (DIA). Fidelity requires the DIA on certain complex and risky products. Investors should only invest in investment products that align with their investment objectives, time horizon, and tolerance for risk.

Investors who have not previously agreed to the DIA for their account will be prompted to review the agreement on Fidelity.com after entering trade details. Investors using the Fidelity app will be redirected to a browser to complete this step.

Liquid alternatives can be used to pursue different investment objectives, including return enhancement, portfolio diversification, and/or risk management. Their returns generally have low correlation to broad movements in the stock and bond markets, so liquid alternatives can offer investors a way to complement their exposure to those traditional markets.

At Fidelity, you can purchase a variety of liquid alternatives on Fidelity.com using the Buy button on a specific fund page. Note that for certain funds you may need to review a designated investment agreement and attest that you are an experienced investor who understands the risks that come with that investment.

There are a few ways to search for liquid alternatives on Fidelity.com. From the mutual fund screener, use the Asset Class and Category drop-down menu on the left, and select either Alternative and/or Non-traditional equity asset classes. You can also filter by category within each asset class by selecting Expand All and choosing specific categories within the Alternative and Non-traditional equity asset classes such as Equity Hedged, Macro Trading, and Multi-strategy. If youre specifically looking for funds managed by Fidelity, check the box next to Fidelity Funds under Key Criteria.

You can also find liquid alternatives structured as exchange-traded funds (ETFs) using the ETF Screener. Log In Required. On the menu to the left, select Basic ETF/ETP Facts, then Asset Class, followed by Alternative and/or Non-traditional equity. If youre specifically looking for funds managed by Fidelity, select the Fidelity icon at the top of the results table.

Alternatives may have fee structures that differ from traditional investments, so it may take a deeper investigation to understand what you may be paying in fees. These structures may result in higher costs for investors. There are multiple types of fees associated with alternative investments. Heres a list of some common ones. Note that not every type of alternative investment may be subject to every type of fee listed here and there may be others not listed here that could apply.

Fees that compensate the fund manager:

• Management Fee: Fee paid for making investment decisions regarding the fund. They typically range from 1% to 2% of assets under management and are charged on an annual basis.
• Performance Fee (or Incentive Fee or Carried Interest): Fee paid to reward performance. Typically, this fee is charged as a percentage, i.e., 20%, of the profits earned.

Fees to pay for fund’s administration/operating expenses:

• Administration Fee (or Service Fee): Some funds may charge an administration fee separately from the management fee to cover legal, accounting, and other operating expenses. This fee is based on assets under management.
• Redemption Fee: Fee charged when an investor exits or withdraws money from the investment, especially if the withdrawal occurs before a specified period.

Additional fees may be applicable, including subscription or up-front fees, commitment fees, exit fees, due diligence fees, brokerage and transaction fees, and other miscellaneous fees. For a list of the specific fees and expenses associated with any particular fund, please review the offering documents for that fund.

When deciding on the type of account that youll use as a source of funding or to hold an alternative investment, consider the following:

1. The fund itself may have rules, which will differ from fund to fund, as to which type of account registration can be used. There may also be limitations pertaining to commitments made with certain registration types for the fund.
2. Your decision on the type of account to select will depend on your goals, financial plan, liquidity needs, tax considerations, and other factors.

✓ Common account types include but are not limited to individual brokerage accounts, joint brokerage accounts, IRAs, trusts, and other business/LLC accounts.

Many alternatives, such as ETFs and mutual funds, offer a standard Form 1099 reporting taxable income. However, some alts may offer different or more complex tax reporting. This in turn can delay or complicate tax filing, particularly because tax forms related to these investments, such as Schedule K-1s, tend to arrive later than the 1099s investors usually receive from traditional investments. This may require the taxpayer to apply for a tax-filing extension.

In addition, there may be tax considerations associated with the account you use as a funding source or if you choose to liquidate an existing investment when funding your investment.

Alternative investments are not for everyone. Each investment comes with its own unique risks. Liquid alternatives and private market alternatives each come with their own risks, including the following common considerations that every investor should be aware of:

In addition, there may be tax considerations associated with the account you use as a funding source or if you choose to liquidate an existing investment when funding your investment.

• High investment minimums. Some alternatives require a significant minimum investment.
• Complexity. Evaluating alternative investment opportunities is complex. A high degree of investment analysis may be required before investing.
• Unique investments. Every alternative investment opportunity is different. Each alternative investment opportunity has a distinct set of risk and return objectives.
• Liquidity limitations. Some private market alternative investments are less liquid than traditional investments, which means investors may have little to no access to the money theyve invested, or any potential profits, for years.
• Fees. Some alternatives may have fee structures that differ from traditional investments, so it may be more difficult to determine exactly what your expenses may be. In many cases, the fees and expenses may be higher than those associated with more traditional investments.
• Regulatory requirements. Alternative investments are subject to unique regulatory requirements. Although they're regulated by the Securities and Exchange Commission (SEC), they don't necessarily have to be registered with the SEC.
• Taxes. Some investments require tax reporting related to alternatives, such as K-1s, which arrive later than other types of tax forms, and can make filing income taxes more complex. In addition, there may be tax considerations associated with the account you use as a funding source or if you choose to liquidate an existing investment when funding your investment.
• Monitoring. Monitoring financial performance of alternatives can be more complex than traditional investments. It may be difficult to determine the current market value of an alternative asset; and there may be limited historical risk and return data. Past performance is no guarantee of future results.
• Leverage Risk. Leverage in investing is essentially when an investment manager uses borrowed money to invest. This could have a positive impact on the potential return due to increased investment power, but also comes with the risk of exacerbating losses in times of market downturns. Its important to note that as an investor, you cannot lose more than what you have invested for capital.

Fidelity customers who want to learn how to invest in private market alternatives are encouraged to schedule an appointment to confirm their eligibility, get answers to their questions, and, if appropriate, gain access to private market alternative investment opportunities.

There are a few ways to search for liquid alternatives on Fidelity.com. From the mutual fund screener, use the Asset Class and Category drop-down menu on the left, and select either Alternative and/or Non-traditional equity asset classes. You can also filter by category within each asset class by selecting Expand All and choosing specific categories within the Alternative and Non-traditional equity asset classes such as Equity Hedged, Macro Trading, and Multi-strategy. If you're specifically looking for funds managed by Fidelity, check the box next to Fidelity Funds under Key Criteria.

You can also find liquid alternatives structured as exchange-traded funds (ETFs) using the ETF ScreenerLog In Required. On the menu to the left, select Basic ETF/ETP Facts, then Asset Class, followed by Alternative and/or Non-traditional equity. If you're specifically looking for funds managed by Fidelity, select the Fidelity icon at the top of the results table.