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Alternative Market Briefing

Penso shifts focus to tailor hedge fund portfolios hedges against systemic risk

Wednesday, April 07, 2010

From Kirsten Bischoff, Opalesque New York:

Hindsight is 20/20, and eventually, we will be far enough removed from 2007-2008 to properly analyze the various systemic risks that shook the financial markets. Such analysis will be a necessary academic exercise for sure, but the takeaways will be limited, for the sources of new systemic risk will have already changed multiple times. For example, today Greece poses systemic risk – but depending on what events unfold – tomorrow or at any moment in the future, Greece could pose little or no risk.

Adding to the uncertainty of a risk that constantly changes forms, systemic risk is additionally insidious because it is always present. It is unavoidable risk; you cannot diversify away from it because when certain shocks hit the financial system they have the capacity to affect every aspect of it.

“There are two camps of thinking regarding systemic risk,” observes Penso Advisor’s Ari Bergmann. “One camp is constantly thinking about systemic risk possibilities, and the other camp – which represents a pretty large number of people – thinks that perhaps 2008 was an aberration and that life is happy once again.”

It is difficult to look at how technology and communications have allowed economies to globalize and not see the increasing contributors to systemic risk. Money flows have no bounds, evidenced by investors looking for high growth and performance returns su......................

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