Watch Your Tail: Universa Partners with Towers Watson For Black Swan Hedges

Jul 15 2015 | 2:23pm ET

Universa Investments has announced a strategic relationship with Towers Watson in which Towers Watson will reserve sufficient capacity in Universa’s tail risk strategy to hedge equity investments on behalf of their endowment and foundation clients.

The relationship will focus on the incorporation of tail hedging at the portfolio level, which requires a fraction of a portfolio’s capital, according to a press release. The goal is to eliminate the “left tail” of downside risk through an allocation to Universa’s pioneering Black Swan Protection Protocol strategy. 

The strategy attempts to protect the long equity portion of the portfolio against systemic market shocks and crashes, with the goal of enhancing long-term returns and significantly lowering risk. Universa has managed this strategy since 2008 for institutional clients, and it builds on the pioneering work that Universa’s CIO & Founder Mark Spitznagel began in the 1990’s.

“All advisors need to be able to identify a range of possible outcomes in their clients’ portfolios, both losses and gains, even if some of those outcomes currently seem unlikely,” said Brian Caldwell, who advises U.S. endowments and foundations within Towers Watson. “This allocation to tail strategies allows non-profit executives to make investment management less complex, and consequently focus more money and time on their core missions.”

“While today’s monetary distortions and resulting valuations have made equity investing as perilous as ever, most investors do not have the luxury to wait for better investment opportunities,” said Spitznagel.

“We allow for our clients to remain long equities, but to do so responsibly by hedging against the great systemic risk to their portfolio,” he added.

Spitznagel founded Miami-based Universa Investment in January 2007. The company manages approximately $6 billion in assets. 

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