As liquid alternative offerings continue to grow, investors are charged with the task of determining which funds are appropriate for inclusion in their portfolios. One of the primary areas of confusion surrounding liquid alternatives is exactly how many exist as true alternative offerings.

A significant portion of the confusion can be attributed to database provider Morningstar, which remains the primary source for mutual funds research. While I have great respect for Morningstar as an institution, the company’s inability to correctly create and classify alternative strategies has had a direct impact on this growing field. Unfortunately for the industry, Morningstar is not dedicated to the alternative investment business but rather the mutual fund business as a whole. Their classifications are largely tied to specific asset classes, which strategy lends itself well to long-only investing but falls short when it comes to hedge fund strategies.

A key flaw in Morningsta