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Benedicte Gravrand, Opalesque Geneva, reporting 'live' from the GAIM conference in Monaco (details here).

Think macro to find new opportunities in portfolio construction Commerzbank's Dr. Robert Gray expounded his new research called 'The world turned upside-down'. The main problems funds of hedge funds face are hedge funds' operational problems (which must be met with an experienced due diligence team), the problem of safety in numbers vs. best of breeds and portfolio construction.

There are two lessons we can learn this year. One is to include tail risk insurance in portfolios as that can make a considerable difference in terms of returns and volatility if tailored to the portfolios. The second is that systematic risk is not staked. It is going down at the moment when market risk is going up.

What should one do in terms of portfolio construction? Identify aspects in macro economics that are most risky. The three most obvious candidates being

• Credit tightening - Dr Gray recommended delevering portfolios, invest in liquidity providers rather than liquidity users, shift to asset-based strategies.
• Inflation - the 1970s was the worst decade in modern history in all assets. Now the growing population is the driver for high commodity prices, which will remain high for quite some time, as well as volatility levels. Inflati......................

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