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September 1, 2012

Navigating A Risky World

Agency Brokerage Focuses on Global Risks

By Peter Chapman

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The writing was on the wall. In April 2007, New Century Financial Corporation, one of the largest subprime mortgage originators, filed for bankruptcy. In July 2007, Bear Stearns liquidated two now-infamous hedge funds that invested in mortgage-backed securities. In August 2007, Fitch Ratings downgraded Countrywide Financial to BBB+, its third-lowest investment-grade ranking. In September 2007, the U.K.'s Chancellor of the Exchequer authorized the Bank of England to bail out Northern Rock, Great Britain's fifth-largest mortgage lender.

For Dean Curnutt, then running sales in Bank of America Securities' equity derivatives unit, the signs of a pending financial meltdown were all too apparent. The problem, as he saw it, was that the risk wasn't reflected in the equities markets. Mortgage default rates were increasing. Mortgage originators were collapsing. Mortgage-backed securities were getting the cold shoulder. But the VIX, the Chicago Board Options Exchange's volatility measure, stood at an all-time low of 10.

Long before Lehman Brothers imploded in September 2008, Curnutt, now chief executive of agency brokerage Macro Risk Advisors, was expecting trouble. "I'm a believer in efficient markets," the exec said, "but there are definitely instances when one market is telling you something that another market is not reflecting."

Believing that investors were clueless about the pending financial disaster, Curnutt left Banc of America Securities in January 2008 to spread the word. His plan was to build an options brokerage that would offer money managers insights into the big-picture risks out there and advice on how to use options to deal with them.

Dean Curnett

"The investment community doesn't understand risk as well as they need to in a world that is so quickly changing," Curnutt said.

So there would be no doubts about his mission, Curnutt christened his firm "Macro Risk Advisors." The agency brokerage has focused on the problems in the U.S. and Europe-particularly, the interplay between government and the financial markets-and on advising customers on how to navigate the uncertainty.

"We formed the firm to give clients really good independent advice at a time when the VIX went from 10 to 80," Curnutt told Traders Magazine. Curnutt is the largest shareholder in the company, owning at least 75 percent, according to a filing with the Financial Industry Regulatory Authority.