A long-only investment approach provides an investor positive returns only if the securities increase in value and outperformance is typically measured against a broadly used benchmark to determine the success of the investment (i.e., the S&P 500 index for stocks or the Barclays Bond Aggregate Index for bonds).
Alternative investments, on the other hand, allow for shorting of stocks and/or using leverage and derivatives and access less familiar asset classes to construct the portfolio.
Alternative investments seek absolute returns that are focused more on profitable trades and positive performance, regardless of how underlying markets are performing. This does not mean, however, that they will always provide positive performance; rather, it implies that their performance is not tied to a typical benchmark.
Read MoreAlternatives add diversity, cut risk
This allows portfolio managers the flexibility to focus more on their long-term conviction in the trades they make rather than comparing themselves to the short-term performance of a benchmark and allows for a potentially lower correlation to other asset classes.
This can be a struggle for investors who are focused purely on benchmark returns, as alternative investment managers are more focused on their long-term risk-adjusted performance. The goal is for investors to reduce the overall long-term portfolio risk and thereby reduce the effects of a market downturn. The beauty is for alternative managers to make money from market dislocations and provide more consistent returns over time.