Strategy Risk vs Asset Risk

Alternative Title: How to Avoid Bad Manager Timing

Strategy Risk: If you own a black-box ‘go-anywhere’ hedge fund that invests long and short, uses futures and derivatives at any frequencies, you are mostly exposed to the strategy risk.

Asset Risk: On the other hand, if you buy and hold S&P500 for the long-run, you are mostly exposed to the underlying asset risk.

Months Before AIG Went Bankrupt

A Story About Unexpected Risk.

It was at the beginning of 2008, at our downtown office on Pine Street in Manhattan. I was a young quant portfolio manager at AIG and I was standing in the office of one of my mentors, a talented senior portfolio manager who was looking nervously at his screen.