I want to clarify something that maybe some investors don´t understand well: the VAR.
I have the feeling some investors think 30% VAR is more risky than 3% VAR.
Let´s make an example:
Both of them has a lost of $300 in his underlying strategy. Let´s see how it would affect their outcome on their underlying strategies and the Darwins.
Darwin A): lost 3% of his equity. And 1% loss in its Darwin (so INVESTORS LOST only 1% too).
Darwin B): lost 3% of his equity. And 9% in its Darwin (so INVESTORS LOST 9% too).
So, in short.when an underlying VAR is above 10% the trader is taking a higher risk of his own money, and don´t the investors money. When the VAR is lower than 10% the trader is protecting his own money, while he is increasing the risk of his investors and Darwinia AUM.
So, what happens when some traders with more than $10.000 run a 2% VAR strategy? They are trading with a very low risk on their own money, and FIVE times more risk with the investors and Darwinia AUM...because the Darwin run a 10% VAR risk. So, as lower the risk is, the higher the risk is for the Darwin, therefore for the investors too.
Then, are these traders/darwins playing the system or are they being smart? Are they fooling the investors that couldn´t know how VAR works?
Now that we are talking about VAR reduction to 5%, I think this explanation is relevant in this thread, because I´ve read some comments that dont make any sense to me.
Any respecful comment is welcome.