For more than 20 years, the Talaria investment strategy has combined two distinct sources of return: the equity risk premium and the volatility risk premium. By bringing these together in a single investment process, we create multiple levers of return rather than relying solely on rising equity markets.
This gives us the ability to generate returns when equities alone may not. It has also helped deliver lower downside capture during equity market declines and a more consistent return profile.
Our approach begins with implementation. Every equity position starts life as a fully cash-backed put option.
Entering positions this way allows us to capture the volatility risk premium: an alternative source of return created by investors’ willingness to pay for downside protection. In practice, investors often pay more for portfolio insurance than the subsequent market movements ultimately justify.
The volatility risk premium persists because the demand for insurance is both behavioural and structural. Investors feel losses more acutely than equivalent gains: the pain of losing $10 is greater than the satisfaction of making $10. As a result, insurance is often priced above its realised cost, creating an enduring opportunity for disciplined investors.
By combining the volatility risk premium with the equity risk premium, our investment process is less dependent on market direction than traditional equity investing.
Returns from option premiums do not require markets to rise, fall or remain unchanged, while our equity exposure maintains access to the long-term growth potential of high-quality global companies.
To see exactly how Talaria’s implementation process works, watch Co-Chief Investment Officer Chad Padowitz explain the strategy in the short video below.
