Devin Anderson – Strategy versus Structure in Tail Hedging (S6E14)

08/14/23 • 71 min

My guest is Devin Anderson, co-founder of Convexitas.

The theme of this episode, as you can likely guess from the title, is strategy versus structure. While we often focus on strategy specifics on this podcast, Devin hosts a masterclass as to why the structure you wrap your strategy in can ultimately determine the type of strategy you can deliver.

Specifically, we discuss option-based tail hedging and the types of strategies that can be delivered in hedge fund, mutual fund, ETF, and separate account wrappers.

In the back half of the conversation, we dive into how Convexitas implements their risk mitigating strategies. Specifically, Devin explains why Convexitas focuses on convexity with respect to the S&P 500 and actually refuses to customize this mandate, despite having the ability to do so at scale.

Finally, we end the conversation on a bit of a spicier note, where Devin explains why most market pundits overstate the influence large, scheduled derivative rolls might have on the underlying market.

Please enjoy my conversation with Devin Anderson.

My guest is Devin Anderson, co-founder of Convexitas.

Specifically, we discuss option-based tail hedging and the types of strategies that can be delivered in hedge fund, mutual fund, ETF, and separate account wrappers.

Please enjoy my conversation with Devin Anderson.

Previous Episode

Martin Tarlie - Bridging the Gap Between Financial Planning and Portfolio Management (S6E13)

In this episode I speak with Martin Tarlie, a member of the Asset Allocation team at GMO and spearheading their work on Nebo, a goals-based investment platform.

Martin describes Nebo as, “bridging the gap between financial planning and portfolio management,” with a key innovation being the reformulation of risk from volatility to not having what you want/need when you want/need it. In other words, constraints on both wealth target and horizon.

This reformulation of the core problem introduces a number of complications to the portfolio optimization process. For example, under classic power utility, lower volatility is always preferred. But if you’re an investor expecting significant shortfall with respect to your wealth targets, increased volatility may be something very much worth pursuing.

We spend plenty of time in the weeds discussing topics such as: the limitations of dynamic programming via backwards indication, the term structure of return variance, ergodicity economics, and portfolio selection sensitivity to utility function choices. And while these are all important details, at the end of it all, what Martin stresses most is that it’s the reformulation of the problem being solved that ultimately leads to a more pragmatic solution for allocators.

Please enjoy my conversation with Martin Tarlie.

Next Episode

15 Ideas, Frameworks, and Lessons from 15 Years

Today, August 28th, 2023, my company Newfound Research turns 15. It feels kind of absurd saying that. I know I’ve told this story before, but I never actually expected this company to turn into anything. I started the company while I was still in undergrad and I named it Newfound Research after a lake my family used to visit in New Hampshire. I fully expected the company to be shut down within a year and just go on to a career on Wall Street.

But here we are, 15 years later. I’m not sure why, but this milestone feels larger than any recent birthday I can remember. I’m so incredibly grateful for what this company has given me. I’m grateful to my business partner, Tom. I’m grateful to employees – both past and present – who dedicated part of their lives and careers to work here. I’m grateful to our clients who supported this business. I’m grateful for all the friends in the industry that I’ve made. And I’m grateful to people like you who have given me a bit of a platform to explore the ideas I’m passionate about.

Coming up on this anniversary, I reflected quite a bit on my career. And one of the things I thought about was all the lessons I’ve learned over the years. And I thought that a fun way to celebrate would be to take the time and write down some of those ideas and lessons that have come to influence my thinking.

So, without further ado, here are 15 lessons, ideas, and frameworks from 15 years.

Flirting with Models - Devin Anderson – Strategy versus Structure in Tail Hedging (S6E14)

Transcript

Corey Hoffstein: 00:00

321 Let's jam. Hello and welcome everyone. I'm Corey Hoffstein. And this is flirting with models. The podcast that pulls back the curtain to discover the human factor behind the quantitative strategy.

Narrator: 00:19

Corey Hoffstein Is the co founder and chief investment officer of new found research due to industry regulations he will not discuss any of new found researches funds on this podcast all opinions exp