Pacific Investment Management Company LLC 401 Congress Ave, Ste 2200 Austin, TX 78701. Austin. The goal of risk mitigation must be to achieve the portfolio effect of raising the compound annual growth rate (CAGR), and thus the wealth in the end user’s entire portfolio, by mitigating risk in that portfolio.”. Many tail-risk hedge funds posted astonishing gains during the March selloff, with at least one fund reporting a gain of over 3,000%. Spitznagel stressed in the letter how the firm’s tail-risk strategy is not just another source of uncorrelated returns and emphasized how it’s different from a tactical market call. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. Universa Investments specializes in convex tail hedging and investing. - This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. Spitznagel and Universa’s Distinguished Scientific Advisor, Nassim Nicholas Taleb, together began tail hedging formally for client portfolios over twenty years ago. In March, the Standard & Poor’s 500 stock index lost 26.2 percent at its lowest point, and had declined 12.4 percent as of the end of the month. This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor. where no barriers limit international investment, there is a Universal constant that gives the optimal hedge ratio--the fraction of your foreign invest- ments you should hedge. Here is some more information about tail hedging Worried About A Stock Market Crash? Hedging against tail risk aims to enhance returns over the long-term, but investors must assume short-term costs. Investors may look to diversify their portfolios to hedge against tail risk. “Make no mistake, it’s the systemic vulnerabilities created by this unprecedented central-bank-fueled bubble, and the crazy, naïve risk-taking and leverage that accompanies it, that makes this pandemic so potentially destructive to the financial markets and the economy.”, This content is from: You can view more information on Universa Investments including private fund info, contact info, top management and executives, website, email addresses, and more below: Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. [II Deep Dive: Hedge Funds Have (Almost) Never Delivered on Their Promises. The Horizons Universa Canadian Black Swan ETF (HUT) and the Horizons Universa US Black Swan ETF (HUS.U) are the first ETFs to be launched that pair a tail-risk hedge with an equity index investment. Instead, Universa tells clients to think of it as catastrophe insurance that allows them to pursue returns more aggressively, without the need for more traditional approaches to risk mitigation such as diversifying assets and holding Treasuries, gold or hedge … Culture, This content is from: To put this in perspective, this is the mathematical equivalent of that same 3.33% allocated to a ten-year annuity yielding about 76% per year. The fund, Universa Investments, was founded in 2007 by Mark Spitznagel, who is also runs the fund as the Chief Investment Officer. “This historical perspective serves as a reminder that, going forward, there is every good reason to expect that protecting against large drawdowns with Universa should remain the superior risk mitigation strategy, saving you the needless costs and risks associated with most financial engineering and modern finance solutions, while providing superior “crash-bang-for-the-buck” should the crash continue.”. “So this is far from over; the current pandemic is merely threatening to pop the bubble. If you're happy with cookies click proceed. Universa’s CIO ended the letter with a look to the future, stressing that the world is still in a historic global financial bubble. Universa measures its risk mitigation performance by its portfolio effect — the impact it has on the compound annual growth rate (CAGR) of an investor’s entire portfolio. All rights reserved. Investors in Universa Investments’ standalone tail hedge strategy got what they paid for. …. Why Are Investors Bailing Now?]. 4Q 2012 Economically, this makes sense, as investors should expect to pay for the right to transfer risk to another party, and to pay more when that risk is greater. The hedge fund founded by Mark Spitznagel specializes in convex tail hedging and investing. Your access to and use of the {siteName} site will be subject to the applicable Terms of Use posted on the site. Taleb is an adviser to Universa Investments, which runs tail-risk-hedge investment strategies and posted a 4,144% return in the first quarter. Trend-following strategies are one example: They cannot give as reliable downside protection as index puts, but they have provided surprisingly consistent safe-haven services when most needed, while delivering positive long-run returns. 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