Central Risk Management at Pod Shops
What happened last week? You will want to read this.
In a crazy week for the markets, we saw incredible volatility and a global selloff of stocks.
You can read about the yen carry trade and all the other hypotheses as to why those events occurred. These are explained all over the media (good X posts to get a sense of what has been going on: 1, 2).
The events of last week beg the question:
How do pod-shops actually manage risk in these macro, market-level, high-stakes situations?
At the end of the day, they are known for having the most robust and sophisticated risk management infrastructure.
To answer that question, we will discuss the following:
Why is market-neutral not protected against severe market downturns?
If each individual pod is roughly market-neutral, does that mean all pods combined together are market-neutral?
How do the central risk management teams (led by the Chief Risk Officer) and the CEO/CIOs of those funds shift capital and tilt their exposure when needed?
What are the critical decisions they make and how do they make them? What could they have done last week?