In the latest installment of RealVision’s interview series featuring Jim Grant, longtime publisher of Grant’s Interest-Rate Observer, the newsletter publisher sits down with Alan Fournier, the billionaire founder of Pennant Capital, to discuss one of the most widely discussed topics across modern asset markets: Volatility – or rather, the systemic risks posed by not only the paucity of volatility in modern markets, but how risk parity and low-vol targeting strategies have created imbalances that could lead to massive dislocations should volatility spike.
In the beginning of the talk, Fournier and Grant discuss how volatility has been artificially suppressed for so long that it’s essentially become an asset class unto itself. Investors have devised all these new volatility targeting strategies – like risk parity, for example, that have generated outsize returns since the financial crisis. But many don’t recognize the underlying risks. With so much money piled into the short-volatility trade, a large enough spike could trigger extremely painful selloffs in both bond and equity markets.
This post was published at Zero Hedge on Dec 3, 2017.