(Bloomberg) — A former hedge fund manager whose firm made billions during the global financial crisis is ready to tackle volatility again as he sees threats to market stability at levels 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, United Kingdom-based investor said in a phone 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 during market crashes and profit from betting on rising and falling stocks during calmer periods.
The idea to start the new fund came about after the company developed a model to use artificial intelligence to read large amounts of public information. It helped identify companies in Asia and the Pacific with a high probability of bankruptcy, due to risky behavior such as high debt levels, asset-liability mismatches or even outright fraud, Diggle said. The stock portfolio will also include individual stocks or indices as bullish bets.
Diggle is making its biggest move into volatility trading, following the March 2011 closure of its predecessor Artradis Fund Management Pte. The then Singapore-based hedge fund firm saw assets rise to almost $5 billion in 2008, buoyed by profits from bets on market disruptions and banking problems, only to later fall victim to a reversal in the markets due to unprecedented central bank interventions.
“The number of fault lines that exist today is greater, and the chance of something going wrong is significantly greater, but risk prices have fallen,” Diggle said, drawing a comparison with conditions under more than a decade of easy monetary policy . “So we’re kind of in a similar situation to where we were in 2005 to 2007.”
Potential bottlenecks include the high valuations of US stocks, the abundance of top offices in the country, high government debt and tight credit spreads. A new “bull market generation” of traders entering the sector after 2008 has driven a small group of U.S. tech stocks and crypto to dizzying heights, Diggle said. Meanwhile, it is cheaper to buy instruments to protect against crushing, he added.
Elsewhere, he cited rising geopolitical tensions and China’s shadow banking problems. Retail gamblers will likely see the growing power of passive mutual funds and high-frequency traders exacerbate the failures, as they did in March 2020 and August 2024, Vulpes said in a marketing document for the new fund.