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Alternative Market Briefing

Understanding tail-risk hedges & funds - part five - survey results

Monday, August 20, 2012

Bailey McCann, Opalesque New York:

Over the course of this series, we have examined the history of tail-risk, including the strategies employed by various risk experts, funds, and fund of hedge funds, in order to protect investor wealth during a tail event. Now, we bring you the results of a survey in which we asked our readers to share their thoughts on tail-risk. Please note: the survey was entirely opt-in, and is not scientific. The results outlined below reflect only the opinions of those who responded.

We asked 13 questions on the various aspects of tail-risk. The first question asked how much of a premium investors were willing to pay for their tail-risk hedges. As noted in the introduction of this series, investors have paid anywhere from 50-200bps for tail-risk strategies, and prices can vary widely depending on when investors opt into a tail-risk strategy. Survey data also reflects this variance, 75% of respondents said they were willing to pay a premium of between 2-10%, while 25% said they would be unwilling to pay a premium to hedge tail-risk.

When asked what types of products investors would consider purchasing, the most popular products included - out-of-the-money puts, collars, and VIX products. 75% of respondents said they would prefer separate......................

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