There aredifferentwaystohedgetailrisk, butapopular one is to create a basketofderivatives that will performpoorlyduringnormalmarketconditions but soarwhenmarketsplunge.
For Goldman Sachs, the world is going to hell in a hand basket, according to a report they wrote for hedge fund clients obtained by the Wall Street Journal last month.
Certainly hedge funds have, just, outperformed a weighted basket of stocks, bonds and commodities which has fallen by 22%, according to Gavyn Davies, the co-founder of Fulcrum, an asset-management firm.
Perhaps this is an offshoot of the concept that was purportedly invented by the hedge fund community before things went to heck in a hand basket last summer.