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Alternative Market Briefing

Amidst rising markets, Penso Capital advises risk is extremely underpriced

Tuesday, July 28, 2009

From Kirsten Bischoff, Opalesque New York:

The summer months have brought rising markets and falling risk pricing, making it clear that investors are caught in an ‘act and react’ cycle that is driving us from one swing of the pendulum to the next. “We are starting to see the signs that everyone is piling in on the long side,” says Steve Gross, Principal at Penso Capital. “And we are starting to get near to the point where we believe it is getting to be very important for investors to lock in some of the gains they have been seeing.”

New York-based Penso Capital, which launched its Penso Alpha Risk Overlay strategy in 2006, offers managed accounts designed to actively hedge investment portfolios against such extreme movements.

In March, the firm talked to Opalesque about the over-pricing of risk (see here: Source), and more recently discussed with us how growing optimism has resulted in a reversal – to extreme under-pricing of risk.

Hedge funds have slowed down liquidations Many hedge funds with gated assets previously identified as illiquid have been making gains in the recent market upturn. With this performance turnaround some have reportedly stopped liquidating. With many hedge funds still needing significant gains to reinstate performance fees, the desire to hold onto investments ma......................

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