Alternative investments can be subject to volatile influences beyond the formal exchanges themselves. Government rules, politics, currency fluctuations, commodity prices, and depending on the nature of the investment, global politics are key influencers of such investments. The markets may or may not be government regulated, and may be subject to unique skills in management, negotiation and the ability to execute a contract.

The attraction of alternatives is diversification with the possibility for above average returns.

Tips: Consultants in alternatives will be steeped in multiple disciplines as needed for the category. It is likely that the consultant would retain, or have on staff, specialists with above average skill sets, a high level of expertise and experience, and prior active participation in the field.

Consultants may also be called on to assist with any of the following specific areas:

• Review the alternative category's history and that of a particular enterprise
• Identify classes that fit client needs
• Educate clients on risk/return expectations from alternatives

In institutional investment work, the distribution of assets is generally expected to follow the "prudent person" rule of 1972. The rule states that the advisor must have both knowledge and experience of the investment area under discussion.

There are analytical and academic practices recommended to narrow the investment opportunites available. These will often be submitted to an investment committee for discussion and approval.

Defined benefit and defined contribution funds alike require careful projection beside the analysis of capital investment, return, pension payments and obligations. They must balance fiduciary responsibilities and the influence of the organization or corporation's balance sheet.

The attraction of alternatives is diversification with the possibility for above average returns.

Tips: Critical questions for a consultant are:

1. Does anyone within the firm have past or pending legal actions?
2. Is the firm in compliance with AIMR regulations? Does it recognize the FASB rulings?
3. What do you consider the primary functions of a good asset/liability model?
4. What does a good model show?
5. What are the most frequent areas where trouble occurs?
6. How often do you recommend reassessing the model?

For more information consider:

Worldwide Asset and Liability Modeling, edited by William Ziemba and John Mulvey, takes a serious look at asset and liability modeling from the management science (i.e., operations research) perspective. The combination of theoretical papers and practical discussions of actual asset/liability management ("ALM") models makes for an appealing wealth of information bound in one volume.