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New Managers January 2019

PROFILES: Pearl Capital Advisors, Alloy Investments

 

Pearl Capital Advisors Hedged VIX program ends 2018 up +14.85% Many volatility traders were caught out with directional bets in 2018, but one fund managed to stay above the fray. Pearl Capital Advisors Hedged VIX program ended December up +1.00%, net of fees. The program was up +14.85% for 2018, according to performance data obtained by Opalesque.

Pearl Capital Advisors is the independent investment arm of a California-based family office and takes a relative value approach to trading VIX. The strategy takes advantage of mispriced risk, with the goal of monetizing market moves.

Timothy Jacobson, Managing Partner at Pearl Capital Advisors worked on developing the fund after recognizing the need for a strategy that would be uncorrelated to the broader market and uncorrelated to CTAs. The strategy can work alongside a basket of CTAs for example, adding diversification. Since the program's inception in October of 2015, it has expressed a -0.25 correlation to the S&P 500.

According to Jacobson, the program also avoids some of the pitfalls of long/short volatility trading. "For directional traders, when volatility goes from point A to point B and back to point A, it's going to be hard for them to monetize that kind of move," he tells Opalesque New Managers . "From a relative value perspective, because of how we approach the market, there are ways for us to monetize moves like that and create a more consistent return." "With long-volatility managers," he explains, "the question you have to ask is for the volatility move that they do capture, is it going to be enough to cover all the time they were bleeding out premium?" Consistency of return is important with VIX strategies, which have a reputation for being expensive until volatility kicks in. Jacobson says that reputation is well earned. Pearl's program is designed to be "allweather" such that there aren't typically long periods of negat......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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