EP (Equity Protect)

Equity Protect (EP) uses hard stops, hedges, or drawdown caps to safeguard investor capital and limit losses in equity portfolios.

What Is Equity Protect (EP)?

Equity Protect (EP) refers to capital preservation mechanisms designed to safeguard investor equity by embedding strict risk controls, such as hard stops, hedging strategies, or drawdown caps, directly into a portfolio’s structure or mandate. The primary aim is to limit downside risk and prevent catastrophic losses, especially during periods of market stress or volatility.

How Does Equity Protect (EP) Work?

EP strategies typically combine several risk management tools. Hard stops automatically halt trading or trigger asset liquidation if losses breach a predefined threshold. Hedges, like put options or inverse ETFs, offset potential losses when markets fall. Drawdown caps ensure the portfolio cannot lose more than a set percentage from its peak value. These mechanisms are often built into trading systems or fund mandates, monitored in real time, and enforced automatically to ensure discipline and transparency.

Why Is Equity Protect (EP) Important for Investors and Fund Managers?

Equity Protect is vital for investors and fund managers aiming to:

  • Preserve capital during sharp market downturns

  • Meet institutional risk mandates and regulatory requirements

  • Build trust with allocators by demonstrating robust risk controls

  • Reduce emotional decision-making and maintain investment discipline
    By limiting losses, EP can help investors stay invested and avoid panic selling during volatile periods.

Example: Equity Protect (EP) in Practice

A hedge fund employs Equity Protect by setting a hard stop at a 10% drawdown from the portfolio’s peak. If the portfolio value drops by 10%, all positions are liquidated, and the portfolio moves to cash. In another case, a pension fund uses put options to hedge against market declines, ensuring losses do not exceed a predefined level, regardless of market conditions.

When Should You Use Equity Protect (EP)?

Equity Protect is most relevant:

  • When managing institutional or high-net-worth portfolios with strict risk limits

  • During periods of heightened market uncertainty or after strong equity rallies

  • For investors seeking to participate in equity upside while capping downside risk

  • Whenever capital preservation is a core investment objective

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Investing in alternative strategies involves risk. Past performance is not indicative of future results. The value of investments can go down as well as up, and you may not get back the amount originally invested. These opportunities are intended for sophisticated or qualified investors who understand the risks involved. Please seek independent financial advice before making any investment decisions.

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Curated access to exceptional investment strategies, built on trust and long-term alignment.

© 2022–2025

Confluence Group

Investing in alternative strategies involves risk. Past performance is not indicative of future results. The value of investments can go down as well as up, and you may not get back the amount originally invested. These opportunities are intended for sophisticated or qualified investors who understand the risks involved. Please seek independent financial advice before making any investment decisions.

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