A world of exotic quant trades joins stock meltdown

A burgeoning Wall Street strategy known as alternative risk premia that’s been pitched as a shelter from storms is proving anything but in this once-in-a-century market turmoil. The problem in typical alternative risk premia portfolios is that there is too much risk allocation in two strategy buckets and too few strategies that diversify risks, says Veritas' CIO.

Kari Vatanen, chief investment officer at Finnish pension fund Veritas Pension Insurance. He recently joined from Varma. | Photo: PR / Veritas

The world’s biggest asset managers and investment banks have packaged exotic hedge-fund strategies -- known as “alternative risk premia" (ARP)  -- and peddled them to pension funds and wealthy individuals. Make them transparent, accessible and, above all, cheap, and investors will flock, the thinking goes.

All told these funds have an estimated EUR 180 billion overall riding everything from short volatility to trend-following.

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