Ken Grant, founder of General Risk Advisors, is one of the most foremost experts on volatility and hedge fund risk management. In his debut appearance on Real Vision, he discusses how the texture of market volatility has changed over the years, and provides his predictions on how the next few months are likely to unfold. He also provides some highly salient advice for those who happen to be bearish on equities right now. Filmed on November 27, 2018 in New York.
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Risk Management For Bears (w/ Ken Grant) | Expert View | Real Vision™
I think the risks as we sit here are skewing still to the downside. A lot of funds are going to go out of business. Let’s just assume, and we may be in the midst of it right now, that equity indexes on high volatility end up spinning their wheels over X number of sessions. When I got into this business, particularly into the hedge fund business, that is Shangri-La for portfolio managers. Now it is hell on earth.
Well, my name is Ken Grant. I am the founder of General Risk Advisors, LLC, which is a risk management solutions company based in New York. Love to talk to everybody about how risk management is unfolding in this very interesting environment that we have here.
I’ve been a risk manager my entire career and in fact grew up in the markets, in the futures markets of Chicago, a multigenerational thing. And so I always had an interest and studied it, undergrad, graduate school. Ended up joining the staff of the Chicago Mercantile Exchange and built their risk management department. I was their first chief risk officer. And I still work with them to this day.
More than 20 years ago now, I came to New York. And I found myself in the hedge fund industry, having been hired by Mr. Steve Cohen to help manage his multi-strategy hedge fund. And I did that for a number of years, a couple of other similar type of stops. And for the last 15 years or so, I’ve been offering risk management on a solutions basis, mostly to investment platforms but other risk-sensitive entities as well.
The CME was instrumental in establishing volatility protocols, I’d say, particularly for the equity markets, which is where I do most of my business, not exclusively. I do deal in bonds and foreign exchange and commodities. But the advent of index futures all those years ago was really kind of the benchmarking event. Before that happened, the markets were completely different.
I know this is going to be hard to believe. It predates my career. I don’t know a time when there wasn’t equity index futures, which then featured long open interest and short open interest and a very dynamic process to establish what volatility was. And without that, you wouldn’t have things like the CBOE Volatility Index, which kind of benchmarks volatility for equities as we now speak. But the markets go through a number of iterations. For me, I see them pretty clearly in the rear view mirror.
You start with the dot-com bubble. Well, that was kind of an identifiable beginning and end. And it ended around the year 2000. And then we obviously had the attacks. I’d say there was another interval that ultimately socialized into the mortgage bubble and the crash. And we know what ended that, which was, I would say, the crash itself. Then there’s that interval. And all of these have their own volatility characteristics.
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