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Jack Lowenstein Benedicte Gravrand, Opalesque Geneva:

Several managers talked about how they manage downside protection during the recent Opalesque Australia Roundtable. Some rely on identifying and analyzing typical risk premia, tail management protection, aligned implementation models, while others prefer FX hedging or stock picking skills. FX hedging, however, is only applied as far as the fund manager’s expertise goes.

"From an analytical perspective, all we do is identify typical risk premia that managers or strategies are exposed to, and then we analyze those risk premia in terms of the environment," says Stefano Cavaglia of Philo Capital, an investment advisory company. "That means we have some idea how in certain environments some risk premia have positive payoffs, and negative payoffs in other environments. That is how we get comfortable with what managers do."

Philo Capital identifies a manager’s style, and thereby his specific skill and how it fares in different environments, allowing them to gauge whether the manager is doing what he claims to do.

His company has also recently looked at tail management protection. A lot of his client base likes to invest long-only, and only moves slightly around the 50% allocation. Exposures should move more, he suggests, such as 0%, in case of an expected collapse in a particular market. Many US-based managers ......................

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