Institutional investors have historically struggled to implement effective hedging programs. If implemented in an always-on manner, hedging costs will substantially exceed hedging returns. As a result, always on tail risk hedge funds have performed poorly. But without hedges, investors are exposed to the next downturn.
We work with a group of selective institutions with right organizational structures that enable CIOs and investment staff to implement successful opportunistic hedging programs. Investors set an annual maximum budget for hedging purposes in consultation with DCA. This budget may be used partially, fully or not at all, driven purely by market opportunities. We will act only in response to opportunities with highly asymmetric risk reward. In addition, the hedging strategies will be attractive independently, and are expected to add alpha even if a crisis doesn’t materialize. The strategies are implemented via derivatives, across various asset classes as an overlay.