Alt risk premia chasing 'tail beta' – again

Quant strategies that failed in the coronavirus crash face a reckoning

When markets fell into a pandemic-provoked tailspin in March, investors in alternative risk premia strategies got an unwelcome reminder that ARP won’t always help in a crisis. These alternative strategies – intended to move independently of wider markets – fell as if they were tethered to plunging stocks. Some portfolios are down by over 15% year to date.

The crash exposed technical flaws in the way some strategies are constructed. In many, it has shown up so-called tail beta – vulnerability to