Tail Risk

Those people who know me - and my approach to Portfolio Management - are aware that I'm constantly arguing any formula and function implying a normal distribution.

That said, I haven't found more accurate Risk Management Tools yet - if you know one, give me a shout.

What I see frequently, when engaging with fellow investors for either co-investments or purely tossing ideas and maybe buying a Portfolio Company they own, is that the appetite for investment significantly increases, if the tail risk tagged on it is high. This apparently must be a mental thing, because normalized and rationalized you would not touch such an investment, if you know it is most unlikely that you make money doing it.

That is certainly true for VC Funds - but that is their business to some extend but there are only x number of bad investments you can make before your performance is in critical problems - this get's even more important if your Fund structure is closed end.

I've worked far to long for insurance companies and spent to much time with Risk Modelling to be not influenced by this business model.

I like to harvest steadily small premiums and generate good Cash - Flows and prefer to accrue a portion for a Tail event, which eventually will happen.

That's way I know for sure, I'm not made for venture capital investments and I'm a clear value player. 


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