By Juliet Chung
The recent market rout caught some star Wall Street traders by surprise. But not a hedge-fund firm affiliated with “The Black Swan” author Nassim Nicholas Taleb, which gained more than $1 billion on a strategy that seeks to profit from extreme events in financial markets.
Universa Investments LP was up roughly 20% on Monday, according to a person familiar with the matter, a day when the Dow Jones Industrial Average collapsed more than 1,000 points in its largest intraday point decline. The blue-chip index finished down 588 points on the day.
The fund’s returns for the year climbed to roughly 20% through earlier last week, this person said. Universa holds positions designed to protect about $6 billion in client assets, according to people familiar with the firm.
“This is just the beginning,” said Universa founder Mark Spitznagel, referring to the market volatility last week. His longtime collaborator, Mr. Taleb, who advises Universa, is a professor at New York University and is known for his pessimistic forecasts on the global economy.
“The markets are overvalued to the tune of 50%, and I’ve been saying that for some time,” said Mr. Spitznagel, who has spent the past several years warning of a coming correction he viewed as inevitable given the easy-money policies by central banks around the world.
Miami-based Universa and other “black swan” hedge funds that seek to reap big rewards from sharp market downturns emerged as winners amid the world-wide volatility of the past week, according to investors.
These funds “so far this month have been very strong,” said Gregg Hymowitz, founder of New York-based hedge-fund investor EnTrust Capital Inc., who has invested in several such funds since 2011. “If your house burns down, you want to have some protection.”
The funds’ nickname refers to the long-held belief that all swans are white, proved false when European explorers found black swans in Australia. In finance, a black-swan event refers to something extreme and highly unexpected, like the financial crisis. Mr. Taleb popularized the term in his best-selling 2007 book….. read more