Tail Risk Funds

Discussion in 'Professional Trading' started by OddTrader, Apr 8, 2013.

  1. Investors turn their backs on "black swan" hedge funds


    Capula, one of the top 10 largest European hedge funds, has lost close to half the assets - about $1.1 billion - in its Tail Risk Fund since mid-2012, two investors in the fund said.

    The fund, which now runs $1.4 billion, fell more than 14 percent last year as investors' belief grew that the ECB would do all it could to calm the euro zone crisis when borrowing costs were soaring for Spain and Italy.

    Other tail risk funds also slumped in 2012, with U.S.-based Pine River Capital's down 36 percent and its assets falling to $200 million from $300 million, a separate investor in its fund said. Both firms declined to comment.

    Unigestion set up a tail risk product after the financial crisis began but shut it in 2010 as markets rallied. Last year the firm considered re-launching but decided not to proceed.

    "If you are a long-term investor, it just never makes you money," Rousselet said.

    As a form of insurance tail risk funds lose investors money if markets are flat - and even more if prices rise - but they can pay out vast sums if markets fall precipitously.

    Pine River's fund, which charges no performance fee so that its managers have no incentive to stray from the mandate that it acts as insurance, is designed to lose 2.5 percent per month in flat markets.


    PIMCO's tail risk products now manage $50 billion, up from about $10 billion in 2009, after investors smarting over losses in the financial crisis looked for protection.

    However, Capula has cut the amount of its flagship Global Relative Value Fund invested in its Tail Risk strategy to 15 percent from 20 percent, one of its investors said.

    This year the firm "re-positioned" its Tail Risk Fund so it is less correlated to short-term market moves. It is up 0.56 percent so far in 2013, a person familiar with the fund said.

    Pine River's tail risk fund fell 3.8 percent in the first two months of this year, one source familiar with the firm said.

  2. Tail risk hedge funds will remain popular despite recent underperformance, says SSGA


    Tail risk hedge funds will remain popular despite a temporary lull in investor interest, State Street Global Advisors (SSGA) has said.

    Investor strategies towards hedging against extreme market events vary although the majority tend to opt for managed futures, CTAs, managed volatility equity strategies and funds of funds. However, CTAs and managed futures have suffered a slight blip in performance, which has prompted withdrawals. A Deutsche Bank prime brokerage study also revealed 39% of investors reckoned tail risk hedge funds would be 2013’s worst performing strategy.
  3. This is the cycle of investments...

    Everyone gets tired of losing 4%/year and then after the next volatillity spike they will jump back into the funds.

    Personally, I think generic tail risk funds are a dumb idea. Do it yourself tailored the spefics of your strategy/portfolio.
  4. Dump???


    The only remotely significant number here is Pimco’s $23 billion in “dedicated tail-risk accounts” — but I’m a bit suspicious of that number, given that Ahmed claims it has doubled in the past year. If you go back to last year’s iteration of this article, from Bloomberg, it was pretty clear that the dedicated accounts hadn’t even launched yet:

    The Pimco Tail Risk Hedging Fund 1 will be the first in a potential series of partnerships, according to a private placement filed with the U.S. Securities and Exchange Commission on June 23. The initial fund will be designed to protect investors from a drop of more than 15 percent in a benchmark index that Bhansali declined to identify.