(Bloomberg) — A former hedge fund manager whose firm made billions during the global financial crisis is ready to jump on volatility again, as he sees threats to market stability at a level not seen since 2008.
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Steve Diggle's family office Vulpes Investment Management is seeking up to $250 million from investors as early as the first quarter, the Oxford, UK-based investor said in a telephone interview.
Diggle, whose company made $3 billion between 2007 and 2008, is raising the money for a hedge fund and managed accounts designed to generate big returns in market crashes and profits from wagers on rising stocks and decrease in quieter periods.
The idea to start the new fund came after the company developed a model to use artificial intelligence to read large amounts of public information. It helped spot Asia-Pacific companies with a high probability of blowing up, due to risky behavior such as high leverage, asset-liability mismatch or even outright fraud, Diggle said. The equity portfolio will also have single stocks or indices as bullish wagers.
Diggle is making his biggest push into volatility trading, having closed down his predecessor Artradis Fund Management Pte in March 2011. The then-Singapore hedge fund firm saw assets swell to nearly $5 billion in 2008, after to be bolstered by profits from bets on market paths and bank troubles, only to later suffer a turn in markets brought about by unprecedented central bank intervention.
“The number of fault lines available today is greater, and the chance of something going wrong is significantly higher, but the prices of risk have fallen,” said Diggle, comparing conditions under more than a decade of easy monetary policies. “So we're kind of in a similar situation to where we were in 2005 to 2007.”
Potential flashpoints include extended valuations of US stocks, the country's lack of capital markets, higher federal debt and tight credit spreads. A new “bull market generation” of traders who entered the industry after 2008 has driven a small group of US technology and crypto stocks to dizzying heights, Diggle said. In the meantime, it is cheaper to buy instruments to protect against routs, he added.
Elsewhere, he referred to rising geopolitical tensions and the woes of China's shadow banking. Retail customers, the growing strength of passive investment funds and high-frequency traders will likely exacerbate routes, as they did in March 2020 and August 2024, Vulpes said in a marketing document for the new fund.