Liquid Alternatives in Australia: 2025 Trends & Insights

For decades, Australians seeking to diversify beyond shares, bonds, and property were often locked out of sophisticated investment strategies due to high minimums and illiquidity. That’s changing fast. Liquid alternatives—investment vehicles offering hedge fund-like strategies but with the liquidity of listed assets—are surging in popularity, transforming the landscape for retail and institutional investors alike.

What Are Liquid Alternatives?

Liquid alternatives (or ‘liquid alts’) are funds or managed investments that employ alternative strategies—such as long/short equities, global macro, or market-neutral approaches—but are available through liquid, often listed, structures. Unlike traditional hedge funds, which might tie up money for years, liquid alts can typically be bought or sold daily, just like ordinary managed funds or ETFs.

• Accessibility: Available to everyday investors via the ASX or major platforms.

• Diversification: Provide exposure to assets and strategies that don’t always move with the share market.

• Transparency: Subject to stricter reporting and oversight compared to private hedge funds.

In 2025, Australian investors can access liquid alts via listed investment trusts (LITs), managed funds, and exchange-traded funds (ETFs) from both local and global managers. Products range from absolute return bond funds to multi-strategy alternatives and even infrastructure or commodity-focused vehicles.

Why Are Australians Turning to Liquid Alternatives in 2025?

Several forces are pushing liquid alts into the spotlight this year. Volatility in equity markets, ongoing uncertainty in global interest rates, and the search for uncorrelated returns are all driving demand. According to Morningstar’s 2025 Australian Fund Flows report, allocations to alternative strategies have more than doubled since 2022, with liquid alts capturing a significant share of new inflows.

Key reasons for the surge include:

• Portfolio Protection: Liquid alts can help smooth returns when traditional markets tumble, as seen during the 2022-2023 volatility spike and recent global geopolitical shocks.

• Regulatory Tailwinds: Updates from ASIC in early 2025 have clarified product disclosure for alternative funds, making it easier for retail investors to assess risk and performance.

• Innovation: Managers are launching new products targeting inflation protection, ESG objectives, and even crypto-related alternative strategies—giving Australians more choice than ever before.

For example, the Magellan Global Fund (Open Class) and the Platinum International Fund now offer liquid alternative strategies with daily liquidity, appealing to investors seeking both global diversification and tactical flexibility.

Risks, Returns, and Regulatory Updates

While the promise of liquid alternatives is enticing, investors should be clear-eyed about the risks. Liquid alts can be complex, with strategies that may behave unpredictably in certain markets. Fees are generally higher than plain-vanilla index funds, and performance dispersion between managers is wide.

• Performance: According to the 2025 Zenith Investment Partners report, the best-performing liquid alts delivered double-digit returns in 2024, but some lagged traditional balanced funds.

• Fees: Management costs can range from 0.8% to over 2% p.a.—be sure to compare and understand the fee structure.

• Liquidity: While most liquid alts are redeemable daily, extreme market stress (such as the March 2020 COVID sell-off) can test this promise, especially for funds with hard-to-sell underlying assets.

Importantly, ASIC’s 2025 updates to RG97 (fee and cost disclosure) and new product intervention powers are tightening scrutiny of how alternative strategies are marketed and disclosed. Investors now benefit from improved transparency around leverage, derivatives use, and portfolio holdings.

How to Use Liquid Alternatives in Your Portfolio

Experts recommend treating liquid alts as a satellite allocation—typically 10-20% of a diversified portfolio. They’re not a substitute for growth assets but can help smooth returns and reduce drawdowns. Consider these practical steps:

• Define Your Objective: Are you seeking downside protection, uncorrelated returns, or exposure to specific themes like commodities or infrastructure?

• Research the Manager: Track record, transparency, and risk controls matter more than glossy marketing.

• Watch Liquidity: Check redemption terms and underlying asset liquidity, especially in funds using derivatives or private assets.

• Compare Fees: Don’t pay hedge fund prices for index-like returns.

Major platforms like HUB24 and Netwealth now offer curated liquid alternatives menus, making due diligence more accessible for everyday Australians.

Conclusion

Liquid alternatives represent a powerful new tool for Australian investors seeking flexibility and diversification in 2025. With improved access, better regulation, and innovative new products, now’s the time to consider how liquid alts can fit into your investment strategy. As always, understanding the unique risks and doing your homework is key to making the most of this evolving asset class.