(Bloomberg) -- A former hedge fund manager whose firm made billions during the global financial crisis is ready to pounce 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 in the first quarter, the Oxford, UK-based investor said in a telephone interview.
Diggle, whose firm made $3 billion between 2007 and 2008, is raising the money for a hedge fund and managed accounts designed to generate hefty returns in market crashes and profit from wagers on rising and falling stocks in calmer periods.
The idea to start the new fund came about after the firm developed a model to use artificial intelligence to read large volumes of public information. It helped spot Asia-Pacific companies with high probability of blowups, 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 indexes as bullish wagers.
Diggle is making his biggest push into volatility trading, after the March 2011 closure of his predecessor firm Artradis Fund Management Pte. The then Singapore-based hedge fund firm saw assets swell to nearly $5 billion in 2008, bolstered by profits from bets on market routs and bank troubles, only to later fall victim to a turn in markets brought on by unprecedented central bank intervention.
“The number of fault lines out there today are greater, and the chances of something going wrong are significantly greater, but risk prices have come down,” Diggle said, drawing comparison with conditions under more than a decade of easy monetary policies. “So we are kind of in an analogous situation to where we were in 2005 to 2007.”
Among the potential flash points are the stretched valuations of US stocks, the country’s prime office market glut, elevated federal debt and tight credit spreads. A new “bull market generation” of traders who entered the industry after 2008 have driven a small group of US technology stocks and crypto to dizzying heights, Diggle said. Meanwhile, it’s cheaper to buy instruments to protect against routs, he added.
Elsewhere, he cited mounting geopolitical tensions and China’s shadow banking woes. Retail punters, the growing might of passive investment funds and high frequency traders will likely exacerbate routs, like they did in March 2020 and August 2024, Vulpes said in a marketing document for the new fund.