In a recent conversation, Steve Diggle, a notable figure in the financial world and a former hedge fund manager, shared his insights on why he believes market volatility is once again reaching levels reminiscent of the 2008 financial crisis. Diggle, who successfully navigated those turbulent times by securing billions for his firm, is now gearing up to seize potential opportunities emerging from today’s market fluctuations.
His family office, Vulpes Investment Management, is actively reaching out to potential investors, aiming to secure up to $250 million by early next year. Based in Oxford, Diggle explained his strategy involves launching a hedge fund designed to yield positive returns during market downturns while also capitalizing on stock movements when conditions are more stable.
The inception of this new fund was driven by the development of an AI-driven model that trawls through extensive public data. This tool has been particularly effective at identifying Asia-Pacific companies at risk of significant setbacks due to excessive leverage or other financial mishaps. Diggle revealed that part of the equity portfolio would target bullish positions in individual stocks or indexes, seeking to profit from any market upturns.
Looking back, Diggle’s most significant foray into volatility trading came with the closure of his former firm, Artradis Fund Management, back in 2011. At its peak, Artradis managed nearly $5 billion, a substantial increase fueled by strategic bets on market declines and issues within the banking sector. However, unprecedented actions by central banks eventually led to the firm’s demise.
Today, Diggle notes that the risk landscape is fraught with potential triggers. “The situation we face now is akin to the mid-2000s, but with even more fault lines,” he stated, highlighting challenges such as overstretched US stock valuations, a saturated office real estate market, and high federal debt. This creates a scenario where risk hedging has become cheaper, making it an attractive avenue for those wary of sudden market downturns.
He also expressed concerns about geopolitical tensions and troubles within China’s financial sectors, suggesting that these elements, coupled with high-frequency trading and the influence of passive investment funds, could exacerbate market disturbances similar to those seen in 2020 and earlier scare events.
Diggle’s career, notably his stint at Lehman Brothers Holdings Inc., armed him with the expertise needed to navigate these tricky waters. He and Richard Magides co-founded Artradis in 2001, and the firm effectively used derivatives and swaps to hedge against volatile market conditions, showcasing a knack for capitalizing on financial uncertainties.
Despite the challenges, Diggle’s ventures have not been limited to securities alone. Post-Artradis, his family office diversified into various interests, including agricultural investments in New Zealand and real estate in Europe. Yet, the allure of volatility trading has always been present, though opportunities in that space were sparse for a time, partially due to changing arbitrage dynamics.
Now 60, Diggle plans to take a backseat role in daily trading activities, focusing on advising and overseeing the risk management strategies of his new fund. The operational reins will be in the hands of Robert Evans, a seasoned professional with experience from prominent financial institutions like Citigroup.
Diggle acknowledges the unpredictability of markets, cautioning against definitive predictions, but he emphasizes the critical importance of revisiting hedging strategies. As he put it, “It’s wise to consider your safety nets in this ever-changing market landscape.”
