Pearl Hedged VIX Program in 2018
The Pearl Hedged VIX Program returned +1.00%, net of fees, during December, compared to -9.18% for the S&P 500 Index.
In the case of June 2008, it was prelude to the final push in the 90th percentile of realized volatility that was finally reached in October of that year. To what December 2018 is prelude, of course, is to-be-determined. However, the similarities between June 2008 and December 2018 are noteworthy. Both experienced significant stress in the equity markets. Both months occurred within the larger context of increased, and potential transition, in volatility. Both months had closings in the VIX Futures that ended on almost the same level. One key difference is the actual and hypothetical performance of the Program. In December 2018, the Program was +1%. In June 2008, the Program hypothetically declined -4.08%. Therefore, as the Program has pinballed from extreme low-volatility in 2017, to the wipe-out of “short-vol-sellers” in February 2018, back to low-volatility, to echo volatility in October, and potentially to transition volatility in December, the live performance has done well versus other similar periods in the backtest that had more gradual and separated volatility regimes.
San Francisco
The Pearl Capital Advisors, LLC ("Pearl") Hedged VIX Program (the "Program") was built by Pearl, an independent alternative investment arm of a California-based family office, to seek greater diversification and a unique source of alpha. The Program is a futures-based, non-directional, and systematic strategy which seeks to monetize the mispricing of risk between implied volatility and realized volatility. Due to behavioral biases, investors routinely purchase unneeded investment protection during "risk-on" environments and fail to purchase needed protection during "risk-off" periods. This mispricing of risk is observable, is both behavioral and structural in nature, and is persistent over time. Pearl structures trades which isolate both over/under mispricings and strip out market direction bias in the process. The result is a strategy which not only has the ability to provide solid returns in rising markets, but also has tail-risk-like properties to generate outsized returns during market turmoil. Therefore, the Program is designed to be "all-weather" and absolute return in nature. The Program boasts negative correlation to the S&P 500 and is also uncorrelated to CTAs, fixed income, and volatility strategies. The Program delivers true diversification and can benefit even the most diversified institutional portfolios. The Program is subject to a variety of risks, including but not limited to: investments may be speculative and subject to a high degree of risk; investments may be illiquid; an investor could lose all or a substantial amount of any investment in the Program.