There's a Main Street version of hedge funds, and they're beating the real thing

It has been a tough year for investors of all kinds.

Liquid alternatives funds, billed as "hedge funds for Main Street," are no exception.

The funds combine hedge-fund investment techniques - like using derivatives, leverage and short positions - with a mutual fund structure.

Most mutual funds, by comparison, are pretty vanilla and use more traditional investment strategies.

The funds enjoyed bumper growth - doubling in assets under management from 2010 to 2014, according to the Wall Street Journal. Then, last year, that ended and the funds began to close as they began to underperform simpler investments.

In a note out Tuesday, Goldman Sachs looks to put the performance of these liquid alternative investment (LAI) funds, also called "hedge-lite" funds, in perspective.

It turns out, the "hedge-lite" funds largely outperformed the hedge fund strategies they were following.

There are 677 liquid alternative funds, according to Morningstar, which Goldman cut down to 337 "hedge fund-like" funds. These were then divided again in to hedge fund investing categories like equity long/short, event driven, relative value, macro and multi-strategy.

When you look at performance, relative to hedge fund indices that follow the same specific strategy, the liquid alternative funds often did better than the hedge fund indices.

"All five LAI Peer Groups outperformed or performed similarly to the related hedge fund indices last year," the note said.

Now, that isn't saying a great deal. Hedge funds took a hammering last year, so doing relatively better still isn't great. Only one liquid alternative strategy (relative value) actually had a positive return.

It's worth noting that Goldman Sachs is active in this business too, and so it has an interest in promoting it. And the returns were widely dispersed, with some LAI funds doing great and other taking heavy losses.

Still, there is one takeaway that's worth remembering the next time investors start to get hungry for hedge fund investments: Liquid alternative funds are a much cheaper way to get the same kind of exposure, and it looks like they'll do just as well if not better anyway.

"While absolute performance may have been underwhelming, the following analysis demonstrates that liquid alternatives performed in-line with their private placement or hedge fund counterparts," the note said.

The question is when investors will come back to wanting hedge funds-like returns.