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'The Dark Side of the Force is the pathway to many abilities some consider to be... unnatural'
By Niki Natarajan
(c) Niki Natarajan
When I first read the St Paul Teachers' Retirement Fund Association January 2014 investment report, my heart sank. "The move into hedge funds is designed to lower the portfolio volatility (ie. 'risk') reading and provide somewhat better protection in market downturns without unduly sacrificing potential return."
While its rationale for hedge funds seems to be correct given that 66% of the portfolio is equity-related - and by allocating 5% to hedge funds from the equity portfolio, St Paul Teacher is already de-risking its portfolio - my fear is that logical semantics may destroy the returns that most investors say they seek.
Making the assumption that volatility is risk and risk is volatility is like not understanding the difference between fat and muscle when dieting. Fat is the dark side of muscle, like volatility is the dark side of returns. In both cases each has a different name because each has a different purpose. It is how the power is harnessed...