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  • Tricks

OPTO Sessions Damien Bisserier on the risk-parity approach and Ray Dalio’s Bridgewater

Damien Bisserier is the co-CIO and co-founder at ARIS — Advanced Research Investment Solutions — a $19bn investment advisor. He has two decades of experience advising some of the world’s top institutional investors, almost a decade of which was spent at Bridgewater Associates, the legendary firm headed by renowned investor Ray Dalio.

While at Bridgewater Associates, as senior client advisor and senior investment associate, Bisserier was responsible for the firm’s impressive list of clients, including family offices, foundations and pension mandates that ranged from $1bn to $100bn in size.

 

Listen to the interview:

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In his latest venture, Bisserier has perfected the risk-parity approach, a style of investing that is effective in the current market environment. But it is not without detractors who perceive the strategy as having failed to provide reasonable returns during the coronavirus pandemic.

“Where I think risk-parity really demonstrates its value is in rapidly changing economic environments, when you have particularly negative surprise environments like we did in the first quarter of last year,” Bisserier tells Opto Sessions.

Bisserier explains that contrary to conventional asset allocation, which is skewed towards equities, risk-parity “has a significant allocation to assets that are actually biased to do well in that environment”.

“Where I think risk-parity really demonstrates its value is in rapidly changing economic environments, when you have particularly negative surprise environments like we did in the first quarter of last year”

 

Bisserier recalled that his firm “found certain assets were in a bull market when equities were in a bear market,” which helped to make 2020 a “great example of the power of risk-parity and the power of diversification”.

However, Bisserier is not blind to the recent underperformance of many risk-parity strategies. This, he says, was due to a targeted approach towards specific volatility. “It’s related to the fact that risk-parity strategies typically target a specific volatility."

“When you get into an environment like March [2020], when market volatilities spike, those strategies mechanistically will reduce their position sizes in order to continue to target that certain level of volatility,” Bisserier notes that 10% is a pretty typical level.

“The outcome last year was many of those strategies then experienced significant underperformance by virtue of being underexposed to the rally that happened subsequent to the middle of March”

 

“The outcome last year was many of those strategies then experienced significant underperformance by virtue of being underexposed to the rally that happened subsequent to the middle of March."

“So, they were essentially underexposed in late March through, call it the summer, when markets had that really impressive rally in the second quarter, and they were overexposed during the first quarter sell-off.”

“It took a lot of those strategies the full year or most of the full year to recover,” Bisserier recalls.

 

To find out how Bisserier’s risk-parity strategy performed, and for more on risk-parity strategies in general and his time at Bridgewater Associates, listen to the full episode on Opto Sessions.

 

Or for more ways to listen:

 

Listen to the full interview and explore our past episodes on Opto Sessions.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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