Stonebrook Capital Management has launched a proprietary hedging strategy for fund of hedge funds managers to help them keep their heads above water in volatile markets.

Developed by Jerome Abernathy, chief investment officer, and Ahmad Ajakh, director of research, the strategy is the culmination of more than five years of research on the relationship between market conditions and hedge fund returns. Abernathy said the strategy seeks risk contagion periods such as January’s equity sell-off and buys flight-to-quality instruments, such as Treasuries, while selling off risky assets including small-caps and emerging markets, and leaves those positions on until the risk contagion starts to subside.

“When you do this, you end up with a strategy with an extremely high correlation to hedge funds, in general, that adds value exactly when you need it,” he said.

The strategy is implemented either through a managed account or special purpose fund. Abernathy said the firm is currently in discussions with a couple of large groups who are interested in the product.