Kokou Agbo-Bloua from Societe Generale and Natasha Sibley of Henderson Global Investors shared duties in a discussion titled How to Hedge Cross-Asset Portfolios with Risk Transfer this afternoon at CBOE RMC Europe.
They explored how the hedging needs from different investors such as pension funds, asset managers, and insurance companies are drivers of the supply and demand of market correlations. These hedging needs may result in various trading opportunities.
Natasha showed how the efficient frontier of a balanced equity / bond portfolio changes dramatically based on the correlation between the two markets. Another general example is when banks issue structured notes to give a certain type of return, the hedging process is referred to as alternative risk transfer.
They wrapped things up discussing perspectives of cross-asset trading from the sell side and the buy side. Sell side market participants look at risk transfer freeing up the balance sheet to further serve clients, allows investors to match and hedge opposite risks. The sell side can also create innovative solutions in packaging and wrapping risks to increase returns and diversification. For buy side clients risk transfer opportunities coming from the sell side can create unique diversification opportunities.