The continuing quest for new sources of capital as well as the heightened regulation of hedge fund managers and their funds has prompted managers to explore launching alternative mutual funds.  Simultaneously, the desire for innovative investment strategies and uncorrelated returns has heightened retail investor demand for such products, according to a June 2012 report from McKinsey & Company.  See “McKinsey Analyzes Trends in the Mainstreaming of Alternative Investments and Outlines Strategic Imperatives for Traditional Asset Managers,” Hedge Fund Law Report, Vol. 5, No. 31 (Aug. 9, 2012).  However, the organization and operation of alternative mutual funds present numerous challenges and risks for hedge fund managers – in particular, challenges and risks different from those typically encountered in the hedge fund world.  Retail is not necessarily simple, especially if you are starting with a non-retail orientation.  This two-part article series is designed to enable hedge fund managers to weigh the more salient pros and cons of launching alternative mutual funds.  This first installment discusses the structure of alternative mutual funds; the investment strategies typically employed by alternative mutual funds; why hedge fund managers consider launching alternative mutual funds; some drawbacks of launching alternative mutual funds; and the various ways in which hedge fund managers can participate in the alternative mutual fund business.  The second article will detail specific steps necessary to launch an alternative mutual fund; costs and fees associated with launching and operating an alternative mutual fund; how such funds are typically distributed; investment restrictions applicable to alternative mutual funds; and some common conflicts of interest hedge fund managers face when operating alternative mutual funds and traditional hedge funds side by side.  For analysis of an analogous side-by-side management scenario that raises its own conflicts of interest, see “How Can Hedge Fund Managers Use Reinsurance Businesses to Raise and Retain Assets and Achieve Uncorrelated Returns? (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 3 (Jan. 17, 2013) (in particular, the discussion under the heading “Compliance Policies and Procedures to Address Conflicts Raised by Side-By-Side Management”).