The Great Tail Risk Debate

In case you missed it this weekend, there was a big debate/mudslinging argument going on between alternative investing titans Nassim Taleb and Cliff Asness on Twitter over the long weekend. The quick summary was Asness of AQR fame essentially saying Tail Risk funds such as Taleb’s are dumb, and while work every now and then, the wait is too long and too expensive – and Taleb firing back saying essentially AQR doesn’t perform (we’ve weighed in on that before here, part II, and part III) and Asness’ math was all wrong.


We don’t necessarily have a dog in this fight, and believe it mainly boils down to investor preferences, fears, biases and behavior – with those that want more structural and real-time diversification choosing tail risk for its ability to deliver “right now” in a sell off like we saw in March; and those that are after more of a long term smoothing of an equity curve choosing diversification via long term positive expectancy strategies like trend following. We covered some of this in our post asking whether it’s too late to consider tail risk strategies now…, and were excited to see our friends at Resolve Asset Mgmt wade into the tail risk waters in a recent video happy hour (or you can listen to it here).

They cover a bunch of stuff in an entertaining back and forth ‘debate’ which is worth the listen:

  • What is tail protection, how do you define it?
  • Lots of people like idea of tail risk protection, but very few people pull trigger b/c obscure, tough to do.
  • Lots of flavors = puts, credit default swaps, delta hedging, gamma scalping, variance swaps, dedicated short swaps, short term trend, etc – what’s most liquid? What are carries on all?
  • When bounces back, people think – why do I need it now? Can you /should you try and time insurance
  • Do tail risk strategies have negative expectancy by definition?
  • The Taleb/Asness debate

And generally land on the fact that this is a very tough decision for investors, with many unwilling to pay the annual ‘deductibles’, no matter the downside in the future – feeling the deductible savings will outweigh the future losses; and others unwilling to have a potentially unlimited downside and willing/wanting to add tail risk protection even if it comes with an annual “drag” during the good years.

And for more on tail risk strategies and more from Resolve, check out:

The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

Limitations on RCM Quintile + Star Rankings

The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.

See the full terms of use and risk disclaimer here.