Hedge Fund Designed to Benefit from Volatility Blows Up Due to Volatility

New York (HedgeCo.net) – Spruce Alpha was a hedge fund that used a complicated strategy that was designed to benefit from volatility in the market, but in the end the extreme volatility experienced in August led to the collapse of the fund. A recent Business Insider article featured the collapse and noted the events that occurred that may have led to it.

In the end, the fund lost 48% in one month and that basically forced the closure of the fund with the management team returning the remaining assets to investors. As the article from Business Insider pointed out, “The demise of the fund highlights a number of key risks in the hedge fund industry. Trading strategies can prove profitable — Alpha Spruce finished 2014 up 21.6% and was up 1.7% heading into August — right up until they prove disastrous. Key executives can leave, sometimes with little disclosure. And in the end, investors can get wiped out.”

The article also included a description of the fund that was said to be directly from the fund’s performance report:
“The Spruce Alpha Fund seeks to generate high alpha, low beta, and low correlation returns by identifying daily-resetting, highly-levered ETFs experiencing volatility decay, and shorting them in bull and bear pairs,”
With such a complicated strategy, the investment personnel are critical in maintaining performance and yet two key investment executives left the fund and the departures were not disclosed to investors.

Without going in to specifics and without naming names and pointing fingers, this is case of investors experiencing the worst of what can happen in hedge fund investments. Investors didn’t have the transparency to see what was happening with their investment each day nor were they advised of the departures of two key investment executives.
These are the types of issues that the HedgeCoVest platform addresses and keeps investors protected against. With complete transparency to see what investments are in the investor’s portfolios and with the ability to track the performance of the portfolio on real-time basis, investors can see what is going on with their investment.

We are not blaming the management team at the parent company Spruce Investment Advisors, nor are we saying there was anything malicious that took place. We simply want to point out how HedgeCoVest was designed to reduce or eliminate risks like the ones on display in this case.
Rick Pendergraft
Research Analyst
HedgeCoVest

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