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September 20, 2017  

Risk Specialist Pitches Low-Cost Protection

Scott Peng’s Advocate Capital has crafted a fund designed to protect investors in the event of a market crisis.

The vehicle, Advocate Capital Enhanced Beta Fund, began trading in July with $21 million. Peng, a physicist by training who helped expose the Libor rate-rigging scam during the financial crisis, is telling investors the fund offers “macro risk hedging” at a lower cost than so-called tail-risk strategies. Investors in tail-risk funds often endure double-digit losses when markets are flat or rising, in exchange for large payouts in the event of a crash.

Advocate’s product trades a variety of derivatives including currency options, interest-rate swaps and equity-index swaps. Next month, the New York firm will embark on a road show to explain the strategy to investors in London and other European cities.

Peng founded Advocate last year. The firm already has more than $1 billion under management, thanks to backing from a large family office.

Peng, who holds a PhD in plasma physics from the Massachusetts Institute of Technology, previously worked at Secor Asset Management, where he designed customized portfolios for clients. His resume also includes work at BlackRock, Citigroup, Credit Suisse and Oak Hill Platinum Partners.

In 2008, while head of interest-rate strategy in Citi’s global-markets division, Peng penned a report titled “Is Libor Broken?” in which he correctly suggested the benchmark was being manipulated by big banks.

At Advocate, Peng is joined by chief operating officer and chief financial officer Richard Shea, who spent 19 years at BlackRock. Before leaving in 2011, he was a managing director and global head of real estate capital markets. Since then, Shea mainly has focused on managing his own money, while also starting a private equity firm to buy specialty-finance businesses in Latin America.