Crashbusters: These Guys Sell Insurance Against Bear Markets

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Paul Kim and David Berns' enterprise, Simplify Asset Management, markets exchange-traded funds that protect portfolios from disasters like stock market crashes and interest rate spikes.

Paul Kim, a middle-aged father of three, with a house in the suburbs and a dependable job at a Midwestern insurance company, does something a little crazy. He quits the job in order to start his own company.

That dual collapse delivered quite a shock to retirement savers who had been led to believe that bonds would balance out the hazards of stocks. They were desperate for a different kind of risk reduction. This is what Simplify sells. Physics, money—are there connections? There are. The diffusion of heat over time, for example, parallels the diffusion of stock prices. Putting his research into practical terms, Berns explains that it’s all about risk and how people perceive it.

The rate hedge fund, which has $296 million, consists in large part of bets against Treasury bonds. It owns out-of-the-money put options that hit pay dirt if, six years from now, 20-year Treasurys are yielding a percentage point more than they are currently.

 

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