Dear Investors, Partners and Friends,
As we close the books on another year, we want to take a moment to reflect on our performance, the market conditions that shaped our strategy, and our outlook for the year ahead. 2024 has been a year of both challenges and opportunities, and we are pleased to report that the Hyperion fund has navigated these dynamics with the same conservative approach that has defined our strategy since inception.
Fund Performance Overview
This past year, our portfolio delivered a return of 11.26%, net of fees, in line with our expectations for conservative, risk-adjusted returns. While the broader market experienced periods of heightened volatility, we maintained our focus on capital preservation while selectively capturing upside opportunities in areas aligned with our disciplined risk management framework.
Amid challenges such as interest rate hikes, geopolitical instability, and persistent inflationary pressures, we adhered to our core principles. The portfolio remained highly diversified in terms of risk, balancing high-probability market-neutral trades with thoughtful long-volatility positions. This design enabled us to limit downside risk while delivering steady, consistent returns for our investors.
Market Review and Strategy Highlights
Throughout 2024, we faced a complex macroeconomic environment. Central banks worldwide, particularly the U.S. Federal Reserve, continued tightening monetary policy to combat inflation.
One notable development was the continued rise of the now technology-heavy S&P 500 index. Despite trailing 12-month earnings increasing by a modest 7%, the further compression of equity risk premiums relative to “risk-free” rates challenged investors to justify stretched valuations. While Hyperion does not position itself to predict relative equity performance, these valuation stretches prompt us to scrutinize the persistent selling of volatility.
Key Market Metrics
December offered a stark contrast to the rest of the year as themes reminiscent of 2022 resurfaced. Below, we analyze three risk metrics: volatility, skewness, and kurtosis.
- Volatility: Average absolute daily moves fluctuated over the year, with August being almost three times more volatile than June. Excluding these outliers, realized volatility remained within a relatively narrow range—a noteworthy outcome given the implications of the November general election.
- Skewness: Interestingly, 2024 exhibited consistently positive skewness. The top and bottom quartiles of daily market movements revealed that even the most volatile periods were more symmetrically distributed than negatively skewed. Anecdotally, this reflects aggressive “buy-the-dip” behavior surpassing liquidation pressure from equity sell-offs.
- Kurtosis: Volatility stability persisted through most of the year but spiked in September and October, likely in response to August’s volatility surge and election-related news. November saw unusual consistency as markets re-priced the implications of a GOP sweep, while December’s muted pre-FOMC movements gave way to sharp reactions to the Federal Reserve’s commitment to higher rates.
These metrics underpin our ongoing analysis and serve as benchmarks for identifying and capturing opportunities for our investors.
Risk Management and Capital Preservation
Preserving capital remains our primary objective. While 2024’s broad bull market environment provided opportunities, the year’s intermittent bouts of aggressive volatility kept our downside risk systems active.
We welcome volatility, as it enhances the opportunities for our strategies, even if it increases transaction costs. By trading additional expirations, we reduce position concentration and market impact, which directly lowers transaction costs and provides enhanced liquidity.
Looking Ahead
As we enter 2025, markets face a delicate balancing act between optimism for sustained growth and concerns over potential macroeconomic headwinds. Success in managing inflation and potential Federal Reserve easing could bolster equities. However, lingering uncertainties, geopolitical tensions, commodity market fluctuations, and fragile labor markets may temper risk appetite. While recent signs suggest cooling inflation, market participants are beginning to re-price higher inflation expectations. This could contribute to elevated volatility throughout 2025. Despite signs of stabilization in some parts of the global economy, the macroeconomic landscape is likely to remain unpredictable. We will continue prioritizing capital preservation, adhering to disciplined investment selection, and staying prepared for evolving market conditions.
Closing Thoughts
As we conclude another year, we want to extend our deepest gratitude to all our investors. Your trust in us to preserve and grow your wealth is the cornerstone of everything we do. Every decision we make, every investment, every process improvement is driven by our unwavering commitment to maximizing risk-adjusted returns.
We remain steadfast in our disciplined, conservative investment approach and are confident this philosophy will continue to serve us well in the years ahead. Thank you for your continued partnership, and we wish you all a prosperous and healthy 2025.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS.
