Vulpes Investment Management, the family office of veteran hedge fund manager Steve Diggle, who made billions during the 2008 financial crisis, is planning to raise up to $250m for a new hedge fund and managed accounts, according to a report by Bloomberg.
The new investment vehicles, which could launch as early as the first quarter, will target market dislocations and opportunities to profit in both volatile and stable periods, and mark Diggle’s biggest return to volatility trading since 2011, when his previous firm, Artradis Fund Management, closed its doors.
The decision to establish the new fund stems from Vulpes’ development of an artificial intelligence-driven model, which analyses vast amounts of public data to identify companies in the Asia-Pacific region with a high probability of financial trouble – triggered by risky behaviours like excessive leverage, asset-liability mismatches, or even fraud. Alongside these bearish bets, the portfolio will include bullish positions on individual stocks and indexes.
The report quotes Diggle as saying that: “The number of fault lines in today’s markets is greater, and the chances of a major disruption are significantly higher than in 2008,” while also noting that risk pricing remains relatively low, creating an environment similar to the years leading up to the global financial crisis.
The new fund will draw on Diggle’s expertise in capitalising on market turmoil. At the height of the 2008 crisis, his firm, Artradis, managed nearly $5bn in assets and earned massive returns from bets on market crashes and financial instability. Among its notable trades were credit default swaps (CDS) with more than $8bn in notional value, which included bets against the very banks that sold the derivatives.
One such CDS on Lehman Brothers delivered a staggering 367-fold return after the bank’s collapse, while a similar trade on UBS yielded a 20-times profit.
At 60, Diggle won’t be involved in day-to-day trading but will oversee risk management for the volatility portion of the portfolio. Robert Evans, a Singapore-based professional with experience at firms like Citigroup, will serve as the fund’s main portfolio manager.
“It’s a fool’s game to predict exactly when the market will crash,” Diggle said. “But everyone needs to start thinking about their hedges again.”
