Tail Risk Hedge Funds
What are the well known tail risk hedge funds? Does anyone know?
Is Universa known to be any good or is it just well known because of its association with Nassim Taleb?
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There are a number of managers that have tail-risk funds along with other product offerings (Man Group and Saba come to mind), I don't know of many that are exclusively tail-risk other than Universa and 36 South (based in New Zealand).
Universa was doing well through 3Q last year (up mid 20's%). The other guy besides Taleb, Spaetznagel, has some thought pieces that can be found via a google search. Certainly being affiliated with someone who's in the media a lot can help with asset raising.
I'd like to know too.
My guess is that there are not many tail-risk funds as you have to wait a long time to get paid/ if even the day comes. Most of Wall Street is about positive carry trading, hedged for tail-risk.
I'd imagine that's why there are minimal stand-alone funds but a lot of products offered by established funds-the economics of starting an asset management company to use a strategy that, by nature, is going to have capital attrition most years just doesn't really work.
Would it be that there are also a finite number of investors interested in this strategy?
It would seem to me that HNWI as well as family offices wouldn't be interested so I'm guessing it would only be big FOF's and SWF's who might be interested in such a strategy.
I would think generally you're right-it'd have to be someone with a very diversified portfolio in order to be able to allocate that capital. Scion and Paulson's experience with their short housing trades are examples of how hard it can be to keep investors comfortable with a negative-carry trade.
A lot of people already view hedge funds or other alternatives as their market "hedge" whether that's actually true in practice or not. That's why it makes a lot of sense for large hedge-fund complexes to have an allocation to/product offering in this kind of strategy. Some famous funds basically operate as a "hive" of independent strategies/portfolios for the same reason-the idea is that you are insulated from correlation within one strategy, industry sleeve, or PM etc. SAC and Millennium are good examples of this; they have multiple teams working separately to generate ideas and manage portfolios that roll up into the "master" fund.
Another thing to consider is that "tail-risk" funds don't HAVE to be short-biased relative to "the market" nor do they necessarily require huge market collapses to make money, though obviously they frequently are and the famous recent examples involve both of those things. There are tails on both ends of the bell curve and there can be mis-priced "risk" in either direction and in about any product thanks to options.
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