Nassim Taleb's Fund Made $1 Billion On Monday; This Is How The Other "Hedge" Funds Did

Tyler Durden's picture

You can't say Nassim Taleb didn't warn you: the outspoken academic-philosopher, best known for his prediction that six sigma "fat tail", or black swan, events happen much more frequently than they should statistically (perhaps a main reason why there is no longer a market but a centrally-planned cesspool of academic intervention) just had a black swan land smack in the middle of the Universa hedge fund founded by ardent Ron Paul supporter Mark Spitznagel, and affiliated with Nassim Taleb.

The result: a $1 billion payday, translating into a 20% YTD return, in a week when the VIX exploded from the teens to over 50, and which most other hedge funds would love to forget.

The WSJ reports:

Universa Investments LP gained roughly 20% on Monday, according to a person familiar with the matter, a day when the market collapsed more than 1,000 points in its largest ever intraday point decline. Universa’s profits—some realized and some on paper—amounted to more than $1 billion in the past week, largely on Monday, as its returns for the year climbed to roughly 20% through earlier this week.

 

“This is just the beginning,” said Universa founder Mark Spitznagel, a longtime collaborator with Mr. Taleb, who advises Universa, lectures at New York University and is known for his pessimistic forecasts about the global economy. Mr. Spitznagel himself has spent the last several years warning of a coming correction, one he viewed as inevitable given accommodative policies by central banks around the world.

 

The markets are overvalued to the tune of 50% and I’ve been saying that for some time,” said Mr. Spitznagel.

 

Universa gained renown for its outsize gains in 2008, racking up more than 100% profits for many of its clients. In 2011, it notched around 10% to 30% gains for clients. During the years in between it posted steady, small losses.

The firm focuses on finding cheap, shorter-dated options on the S&P 500 and other instruments it expects to rise in value amid a notable downturn.

 

During the past week, the value of such options that Universa bought over the past one to two months jumped, said people familiar with the matter.

 

The Miami-based Universa and some other “black swan” hedge funds that seek to reap big rewards from sharp market downturns have emerged as winners amid the world-wide volatility of the past week, say their investors, racking up double digit gains in roughly the past week.

Incidentally, this is precisely what a "hedge" fund should do: protect against massive, "fat tail" days like this Monday; instead they merely ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles. Needless to say this makes most of them utterly useless, especially since one can just buy the SPY for almost nothing, and avoid paying the hefty 2 and 20 (or 3 and 45) fee, which until recently was merely there to fund trading based on inside information aka "expert networks" and "idea dinner" thesis clustering.

And speaking of non-hedging "hedge" funds, the table below lays out the performance of some of the most prominent names through either Friday of last week, or as of mid-week. You will notice three things: i) a lot of minus signs for entities that supposedly "hedge" market drops, ii) Bill Ackman's Pershing Square, which until last month was among the best performers, was - as of Wednesday - down for the year, and iii) Ray Dalio's "risk parity" quickly has become "risk impairty" in an environment where both stocks were sold by the boatload, at the same time that China was dumping US treasurys - a scenario no "risk parity" fund is prepared for.

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ajax's picture

 

 

Thanks for the article. Taleb is a terrific read. Always.

http://www.fooledbyrandomness.com/

 

As for Greenlight: oooh ouch ouch.

ajax's picture

 

 

"Incidentally, this is precisely what a "hedge" fund should do: protect against massive, "fat tail" days like this Monday; instead they merely ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles."

Once again, thanks for the article.

amarchhareinmay's picture

Thanks for the link. I've been trying to finish fooled by randomness and the black swan for about a year now. I think I'll just read some of his links for a while before I try and tackle his books again.

BeanusCountus's picture

Me too, but thats as of Monday. As of today everything probably different. Changes in a minute.

davidalan1's picture

money isnt everything right, RIGHT?

New_Meat's picture

Perhaps Jesus will grace us with its presence tonite and let us know what it Says.  As far as "DO?" no one will ever really know.

- Ned

trader1's picture

oh come on junkers.

forgive me.

Reichstag Fire Dept.'s picture

No, money isn't everything...it's the only thing. ;)

New_Meat's picture

Actually, it is "winning is the only thing"

And coming from a failure such as your name, I'd guess that you don't quite grok the difference.

- Ned

Son of Loki's picture
Amtrak Train Collides With a Moving Van in San Diego

 

http://www.msn.com/en-us/news/us/amtrak-train-collides-with-a-moving-van...

 

What the heck was the train doing on the tracks?! Those xx crossings are reserved for broken down cars and moving vans.

kchrisc's picture

Will we have a "grief stricken" father on C(ia)NN lamenting the ease of access to moving vans, and the need to restrict them?!

Zion is a scheme, not an ethnicity.

Monetas's picture
Monetas (not verified) kchrisc Aug 29, 2015 5:47 AM

A slogan a day .... keeps reality away .... Zion is a scheme .... not an ethnicity .... profound .... about time for a slogan change .... and an original thought .... who are you .... stop hiding behind faux gravitas ?

WhackoWarner's picture

Heaven help but this moving van perhaps was someone's home?  Or a transport vehicle for relocating humans.

viator's picture

Not a black swan, but a golden swan.

fattail's picture

It was actually a goose laying golden eggs.  Bet you didn't see that coming.  

-Black Swan

alexcojones's picture

This guy is probably just as connected as the rest.

INSIDE Job

Speaking of so-called "Black Swan" events, I wonder what Mr Taleb says about this? Hot molten metal right, Nassim? Right?

The Woman At The Edge Of The Abyss 

 

Spitzer's picture

Bah

 

Nice to see one of the good guys make an easy buck.

in Nassims world, isn't this life changing money ? or was he always a rich fukka ?

algol_dog's picture

He's loaded. He scored on the "87 crash on eurodollar options. Something like $35 million.

Spartacus Rex's picture

Hey Zoomie,

Where's all the sockeye & salmon pate?

& when is your next film coming out?

Cheers,

S. Rex

hungrydweller's picture

OK - they made money this year because of an HFT exacerbated sell off.  How have they done over the last 7 years given the Fed put?

Itch's picture

Good to see, takes balls to leak cash all year waiting on a move like mondays. It also takes balls to see it through when it actually happens! (that's usually the part that gets me).

Shpedly's picture

They probably owned a shitload of cheap "end of the world" put options. No way they could have banked that much trading actual stock in that fast a market. That reminds me, i need to check my Powerball ticket from last week.

buzzsaw99's picture

i'm really happy for him. /s

Pure Evil's picture

Don't piss on his parade and try to tell him it's raining yellow snow.

You're a mean one Mr. Grinch.

copernicus's picture

This doesnt make sense, Universa manages less than $200M, how can they be up 20% and have made a billlion, are they up 20% or 200%? Even there it doesnt add up. Also some of it paper profit, does that mean at dead low and they never covered it there?

RopeADope's picture

What time period are you from? Didn't you get the Fed memo that you are not supposed to be inquisitive post 2011?

Blano's picture

It would mean they had lost money year to date until Monday. 

Blano's picture

It would mean they had lost money year to date until Monday. 

carneades_jazz_hands's picture

Yep.  These moves following China's deval have been wonderful for the most part.  

Hope for their sake they don't leave it all on the table.

q99x2's picture

Investing in FAZ for a few days would have done the same.

TeethVillage88s's picture

I don't think ZH or Talib are up to the Task.

Look he is sitting there looking animated and happy, in the Fascist America that means he didn't learn anything in his studies, doesn't know Industry, doesn't know Economy, doesn't know about the hardship of K-12 and paying for College...

Well, in the USA appearances are everything.

You can have a degree and other strong points, but you are considered unemployable, undesirable, and un-valuable.

We like to eat our young and destroy our young men...

Let' throw our kids in Jail, fuck 'em!

We are reaching a point where people who smile are not considered serious. I'm sure this is true in Ukraine.

It is likely the rule in China and Russia.

lasvegaspersona's picture

Billions may not mean much if the problem is the dollar.

Buy gold, take a loooong vacation.

Jendrzejczyk's picture

I want to know how Hugh Hendry did. Did he revert to himself in time?

http://www.ft.com/cms/s/0/823621de-36b1-11e5-bdbb-35e55cbae175.html#axzz...

Freddie's picture

Nassim is a Lebanese-American Orthodox Christian.

https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb

Just like Danny Thomas who started St. Jude's Children Hospital. Danny Thomas was Catholic.

https://en.wikipedia.org/wiki/St._Jude_Children's_Research_Hospital

Good guys.

Boxed Merlot's picture

Danny Thomas was Catholic...

 

He was the first one I heard mentioned as a kid about wishing to have his nose filled with nickels, being Catholic did not come to mind.

WillyGroper's picture

St. Judes has devolved. They like to parrot they turn down no one & that is patently false.

A friends grandson had surgery as an infant for a biliary duct obstruction. Forward to age 8. Medical issues to numerous to name. The Dr. that performed the surgery missed a cancerous tumor on his liver the size of a grapefruit that their dog had been sniffing.

St. Judes turned them down.

Needless to say, that poor child went through chemo hell.

Perhaps it was his color.

New_Meat's picture

were these the guys with the boatload of $0.05 Sept 50 VIX calls we heard about last week?

Sounds like insider information, who knew this was gonna' happen? ;-)

Only certain individuals are supposed to benefit from such "low-probability" situations.

- Ned

PeeramidIdeologies's picture

Ya really! Who could have known such a move would happen?

I'm starting to think that any certifiable bears who survived that bull market with their instincts intact should be able to command above market compensation.... Should the bull market be over that is.

Jay's picture

I tried to give my money to the Universa Fund folks but they don't want to know you if you have less than $5M.

richiebaby's picture

I made $10k on Monday.

And I thought I did good

New_Meat's picture

"I made $10k on Monday."

Were you sittin' at your kitchen table and following some advice from some website?

Just wonderin'

- Ned

RMolineaux's picture

These gains have not yet been realized.  They could easily go the other way in some future crap shoot.  Regardless, it is a good illustration of the evils of short-selling.  This is a zero sum game in which the gains of a few speculatos are made at the cost of longer term and more serious investors.   Yes, Soros was lucky (and ruthless) in his bet against the pound sterling.  And what did he do with all his money?  He helped the neocons foment revolutions in many countries with the sole goal of agrandizing the American empire at the cost of many lives and billions of taxpayer dollars.

Urban Redneck's picture

Without short sellers the "market" goes to ZERO in a crash, after the bubble was blown even larger and drew in even more suckers.

And BTW, serious investors HEDGE, whereas fools and get-rich-quick-gamblers...

RMolineaux's picture

The Chinese stock market did nicely for several years while prohibiting short selling.  Short selling artificially and temporarily increases the supply of stock on offer, thereby depressing prices and enabling the seller to profit on the buy back.  Any long term holder who has to sell in these conditions is the loser.  Short selling increases the volatility of the market for the sole benefit of speculators in this zero sum game.

Urban Redneck's picture

You just want the market rigged in your favor.  

It doesn't artificially and temporarily increase the supply of stock, it naturally and permanantly increases market liquidity (assuming someone has to actually borrow the shares at market cost before selling it short, unlike a broker dealer in the USSA).

The alternative is the long term holding fool who doesn't panic first, loses the most.  It isn't a zero sum game, if you think it is then you shouldn't be in the market, because you don't understand how equity martkets work.

 

New_Meat's picture

Re: Soros:

"and what did he do with all his money?  He helped the neocons foment revolutions ..."

Not buyin' anything that puts Soros into a NeoCon side.

Perhaps u don't know who NeoCons are, do you?

I do buy that Soros foments revolution for his own benefit, and has been forever.

- Ned

Mansizedtarget's picture

Sometimes you just have to believe the flush is coming.