What is a common issue that firms face when providing tail risk strategies?

The focus on providing tail risk strategies often involves protecting investments against extreme market downturns or adverse events. This type of strategy typically signifies a defensive approach, aimed at minimizing losses during significant market declines, which reflects the essence of tail risk management.

However, the implementation of such strategies can come at a high cost. Tail risk protection frequently requires the purchase of options or other derivatives that tend to be expensive, especially as they are designed to mitigate extreme risks that investors are typically concerned about. As a result, firms face the challenge of balancing the cost of these protective measures against their potential effectiveness and the overall return expectations of their portfolios.

Thus, while tail risk strategies aim to safeguard against severe losses, they usually carry the burden of higher expenses, making cost management a critical factor in the implementation of these strategies.