Hedge Funds in a Currency Collapse

Sam Mcgee

Sam Mcgee

I've had most of my long term investments in hedge funds for many years. My intention was to protect my investments from a major downturn in the stock markets. This strategy served me well in 2008.

My fear now is that there could be a large drop in the value of printed money. Stocks would offer you some protection from that. The people that held on to their stocks during the collapse of the German mark held on to their wealth.

I don't think that my hedge funds would offer you much protection from a currency collapse. For example a $100,000 hedge fund might hold $100,000 of equities on the long side and $100,000 on the short side. In the event of a currency collapse the long side would increase in value roughly the same amount as the short side would go down in value. The end result could be that you still have $100,000 in your hedge fund. However your $100,000 might not buy a week's groceries in the aftermath of a currency collapse.

Does anyone have any opinions?
 
A good volatility hedge fund might protect you adequately... The volatility would be high enough to compensate your currency risk under extreme scenarios.

Also there are overlay strategies to hedge out currency risk that are probably very cheap right now, given the volatility in Markets being quite low right now. Ask your broker to construct an overlay for the portfolio or create one yourself...

Also - currency profits in Canada for example, are 100% tax-free, I think it is like that in a lot of other places as well, so a currency overlay strategy is tax efficient and should be cost effective.
 
Great, just great. So, if 100K does not buy a week's grocery, do you really think these hedge funds would be standing and brokers going about their business.
 
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