Precedent Convexity
In addition to direct equities, active management, risk factor strategies, and passive indexing, there are several alternative sources of return and sophisticated techniques that can be challenging for managed account investors to access effectively. These are often too expensive, difficult to implement, or simply ineffective when held in modest portfolio sizes.
This is where Precedent Convexity delivers a powerful, practical solution.
We design portfolios that bridge the gap between traditional active and passive approaches, incorporating convexity — non-linear payoffs that enhance performance in extreme market conditions — to deliver:
• Genuine diversification beyond standard asset classes
• Meaningful downside protection during significant drawdowns
• The core benefits of alternative investments (such as asymmetric returns and downside-risk mitigation), seamlessly integrated into mainstream asset classes
Create an advantage….
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Global Equities Core
The Precedent Global Equities Core Fund offers investors long-term capital growth by investing primarily in global equities, with the flexibility to include other asset classes like fixed income, credit, and commodities to manage downside risk. The fund aims to outperform the MSCI World ex Australia Net Total Return Index (AUD) with lower risk over rolling three-year periods, making it a suitable option for those seeking diversified international exposure with a focus on risk management
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Global Equities Plus
The Precedent Global Equities Plus Fund offers investors long-term capital growth by investing primarily in global equities, with the flexibility to use leverage. The Fund may include other asset classes like fixed income, credit, and commodities to enhance returns and manage risk. The fund aims to outperform the MSCI World ex Australia Net Total Return Index (AUD) with similar risk over rolling three-year periods, making it a suitable option for those seeking diversified international exposure with a focus on generating excess returns.
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Equities Income
The Precedent Equities Income Fund is a benchmark unaware strategy which targets high quality, attractively valued companies focussed on shareholder yields. The fund aims to generate higher dividend yield (and buy-backs) than the benchmark making it a suitable option for those seeking growing income from international shares.
What’s different about Precedent Convexity?
Options are a cornerstone for achieving convexity. Their non-linear payoff structure allows portfolios to participate in favourable market moves while offering increasing protection as conditions deteriorate:
• Downside protection — Puts options limit losses in sharp declines, acting as insurance that becomes more valuable in stressed markets.
• Upside participation with income generation — Covered calls or call-writing overlays harvest premium income in range-bound or moderately rising markets, boosting yield without sacrificing too much upside.
Return Layering
Another advantage involves layering multiple sources of return on top of each other within a single asset class (like global equities). This is typically achieved by using leverage to gain exposure to different asset classes without having to sell existing holdings. The goal is to enhance returns while maintaining or even reducing overall portfolio risk by combining uncorrelated investments.
Markets tend to go up over time. Over time, this is very reliable. The key risk is that there is a market event which causes markets to drop over the short-term, and seemingly low correlations between asset classes to increase. This is where Precedent Investors employs tail hedging strategies.
Together, it can be more reliable than traditional active management for several reasons:
Diversification: By layering returns from various lowly correlated assets, it reduces the risk associated with any single investment, leading to more consistent performance
Capital Efficiency: It allows investors to maintain their core portfolio without the need to add alternative investments, optimizing the use of capital
Less key-person dependent: Unlike active management, which relies on the skill of individual managers, Precedent Convexity follows a systematic approach that can be more predictable and less prone to human error
Overall, Precedent Convexity offers a structured way to achieve higher risk-adjusted returns, making it a compelling alternative to traditional active management strategies.
