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Ernesto Prado: “Hedging 2.0”: Why combining a long and a short doesn't mean you're hedged

Nov 21 2012 1 Comment

Ayaltis is a Zurich-based fund of hedge funds backed by large single family offices. Their firm capital commitments allow Ayaltis to focus on "decisive" opportunities, translating into strong performance. Ayaltis' Value Discovery Fund has won several industry awards and has never suffered a down year since launch in December 2008.

In this Opalesque.TV BACKSTAGE video, Chief Investment Officer & Partner Ernesto Prado explains how his fund could perform every year since and including 2008 and reveals:

Why combing a long and a short doesn't mean you're hedged
Tail risk protection is essential: Most investors don't understand or know how to hedge for the extreme events
How to find the "real" hedge fund managers
Opportunities:
1. Mortgage trade still available, but "has completely changed"
2. ”The Octopus": Trading sovereign bonds versus FX
3. Regulatory capital trade: profiting from banks "sanitizing" their balance sheets

He concedes that non-performing fund of hedge funds “are dead”, but not necessarily the fund of funds model. Given the current macro risks, Prado prefers holding U.S. over European securities and choses to invest in managers whose markets are "supported by the full power of the printing press".

Ernesto Prado worked at Fidelity investments in Boston and Salomon Brothers in New York and London in the Fixed Income derivatives group. In 1998 he restructured Salomon's LTCM fixed income derivative portfolio in extremely volatile conditions. After the spin-off of Salomon's Arbitrage Group and of core proprietary trading at the firm he moved to the Structured Credit Trading team where he traded structured credit derivatives. He was responsible for Equity-Linked book in the fixed income trading floor, trading correlation and convertible arbitrage.

Prior to founding Ayaltis, Ernesto was CIO of Peak Partner SA and responsible for fixed income and global macro strategies at Harcourt Investment Consulting AG. The funds under his responsibility were rewarded with two InvestHedge Awards 2007 for best-risk adjusted returns in the fixed income category during the subprime crisis. Ernesto has an MBA from the Stern School of Business in New York and Mathematics from New York University.
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In this Opalesque.TV BACKSTAGE video, Chief Investment Officer & Partner Ernesto Prado explains how his fund could perform every year since and including 2008 and reveals: