Let me give you another reason... If for an investor VAR 10% is above his tolerance, all he has to do is to invest less money. If you want a VAR 2% and are planning to invest 5.000 eur, you can invest 1.000 eur into a VAR 10% and you would get pretty much the same result that having a Darwin win VAR 2%.
On the other hand, just think about you as an investor... you look for a Darwin that operates with a VAR 2%, and you fell comfortable with that 2%, so you invest your 5.000 eur into it.
After some time, the darwin provider gets attention from investor and he gets into his Darwin 500.000 under management....
Now, that trader realizes that operating with a VAR 10% would win 5 times more thant operating with a VAR 2%, so he decides to increase his risk to win much more money from those 500k eur under management.
You, as an investor, would have into your portfolio a Darwin with 5.000 eur with a VAR 10%, taking 5 times more risk than the one you were supposed to take, since VAR into that Darwin has multiply by 5.
Fixed VAR may have many problems when replicating an underlying strategy, but with a fixed VAR:
- Darwins are comparable
- An investor can calculate his risk with no doubt about what is going to be his VAR