Skip to Content
Fund Spy

The PIMCO Approach to Avoiding 'Black Swan' Events

Morningstar Investment Conference panelist Vineer Bhansali attempts to control risk in new ways.

Mentioned:

Like many great ideas, this one came together unexpectedly at a meeting between old colleagues. The story of the development of PIMCO's tail-risk hedging strategy began as a casual chat between two highly respected scholars of finance: Vineer Bhansali and Mohamed El-Erian.

Bhansali, head of PIMCO's 14-person analytics team, was in Boston delivering a conference paper. El-Erian, who had worked at PIMCO, was at the time president and CEO of Harvard Management Co., the firm charged with managing Harvard University's endowment. Bhansali met up with his former colleague to discuss a novel hedging approach that he was developing at PIMCO. As it turned out, El-Erian was doing something similar at Harvard.

The approach, called "tail-risk hedging," aims to protect portfolios that deploy the strategy from rare and systemic shocks. Popularly referred to as "black swans," these events can wreak havoc on portfolios. They are the dramatic losses that appear on the far left end--the "tail"--of a probability distribution curve of investment returns. Their chances of happening are supposed to be minute, but some in finance and economics believe that the shocks occur more frequently than commonly thought, and people are developing ways to hedge against the risks posed by these shocks.

Lawrence Jones does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.