Active Volatility Management

Our tail-risk hedging program, Active Volatility Management (AVM), is a comprehensive volatility and risk management solution that is liquid and low-cost. The volatilities, correlations and other risks of most financial assets are not stable over time, and when they rise to extreme levels the alphas of even the most skilled asset managers can be overwhelmed by broad market losses. AVM seeks to provide a disciplined, flexible, capital-efficient, and transparent method for actively managing the tail risk of a client’s traditional and alternative assets without interfering with the client’s existing managers and their investment processes.

Using customized proprietary risk analytics, AlphaSimplex measures the level of risk associated with the primary risk factors in a client’s portfolio. As risk varies, positions in liquid exchange-traded futures and currency forward contracts are established—either in a managed account or a fund—so as to maintain an acceptable level of risk. These positions are adjusted daily as the risks associated with each of the portfolio’s market exposures change.

Depending on a client’s investment objectives, the flexibility of the risk signal permits the program to be implemented as either:

– a purely tactical hedging mechanism to reduce the potential magnitude of extreme drawdowns; or
– an alpha strategy that can both augment portfolio exposures when risk-adjusted returns are expected to be high and can offset portfolio exposures when risk-adjusted returns are expected to be low.

For more information, please contact us at

“What is AVM?”
Dr. Andrew Lo, Chairman Emeritus and Senior Advisor