BOSLEGO RISK SERVICES

 

Robert Boslego

Harvard College, BA Economics (Honors)

Stanford Graduate School of Business, MBA

 

 

hedging Strategies for hedge Funds

 

traditional stock market valuation models have not been very effective for identifying undervalued stocks or managing risk, as documented in detail in the WSJ article, 'Macro' Forces in Market Confound Stock Pickers.’ the “tidal wave” of macro forces—the economy, political developments, and regulation—have produced large equity draw-downs that just have not been predictable using valuation models.

 

diversification among stocks has not been an effective technique for managing risk over recent years. Macro forces have caused stocks to move in lock-step, producing high correlations among stocks.  The success of ETFs, where many stocks in a sector trade together regardless of relative values, may have contributed to high correlations as well.  

 

These traditional risk management methods have not been effective in preventing large equity draw-downs in many portfolios. Most investors are not interested in investment strategies that involve equity draw-downs of 30% or more.  Furthermore, investors don’t want to pay hedge fund fees for beta risk, and hedge fund indexes have had high correlations to beta markets.

 

The risk management function and process is and should be separate and different from the investment/trading function for many reasons. Here are a few of the challenges to maintaining objectivity:  

 

• The tendency to fall in love with trades and losing the ability to take a measured, dispassionate view;
• Risk profiles that change inconsistently as a function of recent success or failure because there is nothing that strengthens the ego more than being right;
• Attachment to a scenario of what is going to happen as the thesis for positions, and failing to accept ‘what is’ when new, unexpected  events occur because every ego confuses opinions and viewpoints with facts;
• Underestimation of the probability and impacts of “Black Swan” events; and
• Manias, panics and crashes that move market prices far beyond fair-market valuation levels, when mob psychology makes the market irrational.

 

 

Investors want effective risk management. To deliver effective risk management, hedging strategies must be designed, tested and implemented systematically and consistently.

 

Boslego is uniquely qualified to develop effective hedging strategies for hedge funds, according to the fund’s mandate and risk profile.

 

• Boslego has substantial knowledge, experience and reputation in developing hedging strategies, having developed more of them for energy firms than any other source in the world.
• Boslego is an independent, unbiased advisor, unaffiliated with any broker or bank, receives no fees or commissions for execution, and is not a market-maker.