Hedge Funds Gird For Worsening Of Russia-Ukraine Conflict

Mar 6 2014 | 11:44am ET

Hedge funds and other market players are increasingly concerned about the developing crisis in the Ukraine.

Investment firms have sharply increased their “tail risk” protection. Some 17% have “deep downside” protection as of Monday, up from a two-year low of 13% in February, according to Credit Suisse.

Russia has occupied the Ukraine’s Crimea region since the ouster of pro-Moscow President Viktor Yanukovich last month. Ukrainian and American authorities also believe that Russia and President Vladimir Putin are behind pro-Russian protests in the eastern Ukraine.

The U.S. imposed sanctions on Russia today after the Moscow-backed Crimean parliament voted to join the Russian Federation.

“There’s been an uptick in hedging activity,” Credit Suisse’s Jon Kinderlerer told CNBC. “We’ve definitely seen funds add to tail hedges in case the conflict escalates.”

Still, the number of funds with deep downside protection remains below the levels seen during the peak of the European economic crisis in 2012 and the Cypriot bailout early last year. More than 24% of firms had such protection during the former.

“Ukraine is a non-issue for hedge funds, but if conflict breaks out, the region becomes a wider risk for them,” Kinderlerer said. “There would likely be a flight to quality out of emerging market stocks.”

That flight has already begun in Russia, where stocks suffered double-digit losses this week.


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