What are Conservative Long Short Funds?
Conservative Long Short funds maintain a heavily hedged portfolio with net equity exposure typically between 20–50%. They use the short book aggressively to reduce market beta, targeting consistent 12–18% returns with drawdowns limited to 10–12%. They are suitable for HNI investors seeking equity-like returns with bond-like risk.
- Capital Preservation: Drawdown limits of 10–12% strictly enforced
- Low Beta: Net market exposure of 20–50% significantly reduces volatility
- Consistent Returns: Target steady 12–18% vs. volatile 25%+ equity returns
- All-Weather: Designed to perform in both bull and bear markets
- Risk-Adjusted Excellence: Higher Sharpe ratio vs. pure long funds
Risk Management Framework
Conservative L/S funds implement strict risk controls:
- Hard NAV drawdown limit: Stop-loss triggers at 8–10% portfolio drawdown
- Single stock limit: Maximum 5–8% in any one position
- Beta management: Target portfolio beta of 0.3–0.5x
- Short book sizing: Short exposure typically 40–80% of gross long book
- Daily risk monitoring with VaR limits and stress-testing