On Thursday at the 31st CBOE Annual Risk Management Conference in Carlsbad, Colin Bebee of Pension Consulting Alliance (PCA) moderated a Panel on Trends in Institutional Options and Volatility Product Usage.

A pension fund sponsor on the panel noted that his fund made an allocation to the CBOE S&P 500 BuyWrite Index (BXM), and in the future his fund could consider cash-secured put writing. The Risk/Return Trade-off chart (from the January 2015 paper at www.cboe.com/funds) shows strong risk-adjusted performance for the BXY and PUT indexes. Ch-2015-03-05-1400-RisK Return BXM BXY

Four people on the panel participated in a discussion --

  • Vijoy Paul Chattergy, Chief Investment Officer, Employees' Retirement System of the State of Hawai'i (HIERS)
  • Mike Edleson, Chief Risk Officer, The University of Chicago
  • David Goerz, Former EVP – Head of Investment Strategy & Risk Management, Alberta Investment Management Corp.
  • Søren Grooss, Portfolio Manager, PKA

Vijoy Paul Chattergy, Chief Investment Officer, Employees' Retirement System of the State of Hawai'i (HIERS) said we had a traditional financial allocation, but during the financial crisis we asked questions about traditional asset allocation, and at the end of 2014 we introduced a risk-based allocation, and we allocated about 5% to covered calls initially as its own asset class. We also will have a sleeve to real assets, credit, and other classes. Our plan has $14 billion in assets and eight board members who also are investment committee members. We are looking at the process of selecting investment managers. A risk officer covered VAR with the Board. Communication and transparency are key. About 4 years ago, when we selected Gateway to do covered call, we had only about 8 managers to review, and two managers delivered the presentations. We do not allocate to hedge funds. We have moved to a 50-50 allocation, with 50% for passive (BXM Index) and 50% for active buywrite. Maybe we might consider an allocation to a cash-secured put strategy in the future. I think for public funds there is a trend to look at risk and perhaps hire a risk officer. With a big plan with many staff there can be a challenge with people specializing and advocating for one investment silo, but our goal is to look at the entire portfolio.

Søren Grooss, Portfolio Manager, PKA said options and derivatives can play an important role in portfolio management. We used to have exposure to equity risk premium, but now with options we have a set of uncorrelated risk premiums. We can try to take advantage of spread between implied and realized volatility. We can do cross-asset correlations trade. We have a tail hedge.

Mike Edleson, Chief Risk Officer, The University of Chicago said governance is important, and we worked with committee re: (1) beta around 0.77, (2) liquidity, (3) massively negative convex data (increasing exposure to downside as the market gets hit) so we sent some money and we have some insurance policies with four managers (we try to be strategic (not tactical), We have a 2% allocation to long volatility. We warn the committee that we need to counter hedge fatigue (do not take hedge off just because market has gone up), and it is nice that the cost for hedging has been lower than expected. There are not a lot of benchmarks, but we do use some CBOE benchmarks. We still have not had a summer of ’11 to test our program.

David Goerz, Former EVP – Head of Investment Strategy & Risk Management, Alberta Investment Management Corp. I have been managing derivatives strategies for 25 years. We tried to buy options when volatility was low and sell options when volatility was higher. Dodd-Frank had some unintended consequences for the dealer community. Education, transparency, and consistency are important. It can be challenging to hedge Canadian dollar exposure. With the advent of ETFs, it helps brokers take positions. Ideally one should look at all the greeks in assessing risk, but often it is difficult to move beyond the review of standard deviation. Volatility and correlations in the future probably will be very different in the next few years.

For more information about options-related benchmark indexes, please visit www.cboe.com/benchmarks.


Colin Bebee, CMT, Vice President, joined PCA in 2010. He is currently a Vice President with a wide range of responsibilities, including a lead role regarding the design and implementation of PCA’s proprietary risk models. In addition to investment manager due diligence and portfolio performance measurements and analytics, Mr. Bebee provides PCA and clients with ongoing econometric risk modeling, development of capital market assumptions, and the creation and monitoring of customized strategic investment classes. Prior to joining PCA, Mr. Bebee held various roles with Thomas Capital Group, as well as with an Oregon-based e-commerce start-up. Mr. Bebee earned a Bachelor of Science degree in Finance and Economics from Linfield College, magna cum laude.

Vijoy Paul Chattergy is the Chief Investment Officer for the State of Hawai‘i Employees Retirement System (HIERS), and reports directly to the Executive Director and the Board of Trustees. His role involves investment policy construction, portfolio management, asset allocation, and strategic development of the Investment Office. Additionally, Mr. Chattergy oversees monitoring HIERS investments and evaluation of risk/return opportunities. Mr. Chattergy holds an MBA from Cornell University and an MSc from the London School of Economics. He graduated Phi Beta Kappa and cum laude from the College of the Holy Cross with a degree in economics, where he was a Harry S Truman Scholar and a Charles A. Dana Scholar. He holds a charter from the Chartered Alternative Investment Analyst Association (CAIA).

Mike Edleson is Chief Risk Officer, responsible for risk management of The University of Chicago’s endowment. He joined the Office of Investments in early 2010. From 2003–2010, Mike ran risk management globally for four divisions of Morgan Stanley as managing director, including Equities and Morgan Stanley Smith Barney. Previously, he worked as chief economist and senior vice president of NASDAQ and NASD. Mike was a finance professor at Harvard Business School for over six years, following four years on the faculty at West Point; he also served for nearly 30 years in the US Army. Mike is a financial author and inventor, and has been co-editor or associate editor of two finance journals. He is on the board of directors of Myriad Funds and Financial Management Association and serves on the investment committee for West Point. Mike earned a B.S., summa cum laude, from West Point, an M.S. and Ph.D. in economics from MIT, and is a CFA Charterholder.

David Goerz is former EVP, Investment Strategy & Risk Management at Alberta Investment Management Corporation. David joined Alberta Investment Management Corporation as EVP, Investment Strategy & Risk Management in March 2013. David has 24 years of global investment management experience in various leadership and portfolio management roles. David serves on the Board of Directors for Axioma, Inc., a quantitative investment and risk management software company, Mismi, Inc., and Bloom Energy, as well as the Strategic Advisory Board of the CFA Society of San Francisco. He received his BS from UCLA in Applied Mathematics and a MS in Operations Research Engineering from Stanford University.

Søren Grooss is a portfolio manager at Danish pension fund PKA as part of the Equity & Absolute Returns investment team. His areas of expertise ranges from volatility and long/short quantitative equity strategies to insurance linked securities. Søren has 7 years of industry experience working for the Nordic bank Nordea and the Danish energy company Dong Energy prior to joining PKA. He holds a master’s degree in mathematics and economics from Copenhagen Business School.