The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Risk management: More hedge funds are hedging

Many hedge funds are significantly more hedged that they were one year ago, says Steve Gross, principal of Penso Capital Markets, a New York asset management and risk management firm.

"Eighteen months ago, when the cost of hedging was historically cheap, nobody wanted to buy insurance. People forgot about risk and have now been brutally reminded," says Gross, whose risk management capabilities have been attracting an increasing number of new clients. He says that, counterintuitively, it is the hedge funds that are expecting to make huge returns from opportunities in present market conditions that should be hedging more. "The more bullish you are, the more it makes sense to give away a little of the upside to hedge in case you are wrong," he says. "Conservative managers, by contrast, have constructed their portfolios with the expectation of further risks, and therefore the hedge is less necessary."

Just how big can the downside be? If a regular recession/bear market unfolds, Penso expects the bottom to be when the market has dropped 25% to 30% from the highs and PE ratios hit 13 to 14. That would be 1100 to 1150 on the S&P. If, however, inflation does not abate, a recession persists, and the US enters into stagflation, the S&P could drop to 1000 or lower.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree