“Niederhoffer Offers
Risk Parity 2.0”

February 17, 2016

R.G. Niederhoffer Capital has designed a fund for investors who want exposure to a risk-parity vehicle, but are concerned about how such an entity would perform amid the current market swings.

The New York firm launched its R.G. Niederhoffer Total Return Program late last month with $5 million of proprietary capital. It hopes to collect $250 million from outside backers over the next year.

The fund invests in a mix of liquid instruments, selecting its positions by combining R.G. Niederhoffer’s long-term quantitative tools with the short-term trading approach of the shop’s R.G. Niederhoffer Diversified Program. That program, which encompasses the bulk of R.G. Niederhoffer’s $849 million of assets, was posting a year-to-date return of 18.7% on Feb. 10 on top of a 4.3% gain in 2015 and an increase of 14.9% in 2014.

Given that profile, Niederhoffer is pitching the new offering as an advancement in risk-parity products. Those vehicles marketed to pension systems and family offices seeking longterm investments aim to balance the risk of their stock and bond holdings with the idea of prioritizing capital preservation over the maximization of returns. But the approach has backfired of late, in part because the funds’ bond portfolios employ heavy leverage.

Indeed, when stock and bond prices recently experienced simultaneous turbulence, the vehicles actually exacerbated
bond-market volatility by deleveraging their debt positions.

The Niederhoffer fund’s short-term trading component in particular promises to reduce that risk, by enabling the vehicle to jump in and out of positions more frequently than most risk-parity products when stock and bond values move together. In fact, R.G. Niederhoffer Diversified Program oſten has benefitted from such conditions.

Since that program launched in 1993, it has gained a cumulative 98% in months when stock and bond values declined at the same time — something that happened in 41 out of 272 months. Looking ahead, meanwhile, many industry professionals believe slow economic growth worldwide will lead to greater correlations between debt and equity markets.

Still, R.G. Niederhoffer Total Return Program would aim to profit in environments when stocks and bonds move in separate directions.

The challenge for risk-parity vehicles in topsy-turvy mar-kets is illustrated by last year’s 7% decline for Bridgewater Associates’ All-Weather Fund, a bellwether for the sector.

Niederhoffer runs four alternative-investment funds overall. Founder Roy Niederhoffer is best known as a contrarian who studies correlations between asset classes, in particular how hedge funds compare to the stock market. In the total return fund, Niederhoffer is charging 1.5% of assets under management and taking a 15% cut of profits, which is lower than his other funds’ fees.

HEDGE FUND ALERT: February 17, 2016, 5 Marine View Plaza, Suite 400, Hoboken NJ 07030. 201-659-1700

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