First Volmageddon Casualties Emerge: One Hedge Fund Down As Much As 65%

Yesterday's historic VIX move already destroyed an entire asset class: the inverse VIX ETN are no more, meaning retail no longer has a handy, convenient way to short vol, which incidentally is for the better. Unfortunately, what it means is that retail will now simply short VIX ETNs like VXX, exposing themselves to unlimited downside risk but that's what natural selection is all about.

"Yesterday’s move has certainly generated a lot of damage for all implicit short volatility strategies, including trend followers,” said Nicolas Roth, head of alternative assets at Reyl & Cie, envisioning pretty much everyone these days, including both professional and retail investors. "Most systems are designed somehow to capture trends and this sell-off appeared out of nowhere for a quantitative system."

Still, one thing that was missing in the chaos following yesterday's vol explosion was specific asset manager names that got crushed: after all, someone must have gotten the proverbial margin call tap on the shoulder.

And while a list of casualties is still missing, a few names have emerged courtesy of Bloomberg. One is the UK's Man Group, which tumbled as much as 7.9%, the most in almost a year, as one of the firm’s main funds dropped on rising volatility, with stock volume more than double the ADV of the past three months.

Man AHL Diversified Futures plunged about 4.6% on Monday as market trends suddenly reversed, leaving the fund flat for the year, according to a person with knowledge of the matter. The strategy "had a very bad day yesterday, that’s not a surprise,” said David McCann, an analyst at Numis Securities Ltd. “That’s in the context of some very good performance year-to-date."

One firm that according to preliminary reports was the closest to a near-death experience, was Option Solutions LLC. The hedge fund that trades equity options lost as much as 65% after it was forced to sell holdings overnight, according to a Bloomberg report. The good, so to speak, news is that the fund remains in business and will waive its incentive fee for new investors until the fund returns to its high watermark. Considering the size of the handicap, that will probably never happen, although it is not clear if anyone will notice: the firm had managed about €65 million before the losses.

"The market became completely illiquid as volatility increased far in excess of the market movement,” Paolo Compagno, a partner at the London-based firm, said in an email to investors seen by Bloomberg News. “We were forced to liquidate throughout the night and morning."

To be sure, some funds were delighted by the surge in volatility, which was a long time coming for the $325 million True Partner, and acts as a hedge against greater levels of turbulence in global financial markets.

Last year the flagship fund was down 5.6% and up 0.4 percent in 2016. The fund had gained about 17 percent in 2015, benefiting from the flash crash that year.

Still, the real casualties are expected to emerge only with a substantial delay: "Traders who were short volatility just had to puke," according to Tobias Hekster, co-CIO at True Partner Advisor. "And our expectation is we’re not done yet."


Laowei Gweilo overbet Tue, 02/06/2018 - 13:32 Permalink

depends how much they were adding on the way up =p

most of the run was fueled by the top 5% whales after all. like 70% of the vol. (in usd) on most >5% days.


according to their ETF S-1, their plan for its trust has been to back it by BTC held in cold storage

and derives its NAV basically from net BTC less sponsor fees

so.... presumably they were stocking up on BTC, 1. they wanted to build a large enough NAV to launch a ETF; 2. the SEC was already having issues with its asset backing; 3. it's been rejected, and the presumable way to improve their S-1 was by improving its NAV

most of of S-1 amendments to their filing have been focused on the trust.

which would suggest, probably stocking up and cold storing BTC =p


so, yeah, they just may have been adding BTC high enough above today's level that they're a lot closer than -90% from a loss ^_^



In reply to by overbet

CJgipper Tue, 02/06/2018 - 12:39 Permalink

Holy Crap!


I'm holding a ton of crypto and just sitting on it.  I'm up 100% last year and this, but down 50% from the peak.  WTF are these morons doing that they lose 65% in a 5% correction?

Edward Morbius Tue, 02/06/2018 - 12:40 Permalink

Market up - Trump did it!


Market down - not the Donald's fault.


Funny to listen to the Trump dick chuggers like Limbaugh, Savage and Hannity explain this one. And I voted for the Orange Messiah.

Honest Sam Edward Morbius Tue, 02/06/2018 - 13:13 Permalink

No, you did not vote for him.

Because if you did you would have realized that you voted for him because he was not the most hated woman in america. 

And that is still the case, that he did what no other man, woman, human, tranny, crossdressing, pedophile, or entertainer, politician, academic, or any other of the lesser species did: he along with us 61,000,000 LEGAL voters obliterated her chances to EVER bother the election process again. And will never be appointed to the Supreme Court.

He also exposed the Soros funded mass media propaganda machine once and for all.

You are either a very greedy sumbitch, or you are a liar.

I think, you are a liar.


In reply to by Edward Morbius

RAT005 Honest Sam Tue, 02/06/2018 - 13:23 Permalink

Just unbelievable how long her list of evil is, yet still there are people rooting her on, because well the ends justify the means and after most of a lifetime patting themselves on the back about how righteous they are, there isn't a safe space big enough to insulate them from the reality of their life being a complete waste as they were played by the very forces of evil they thought they were so graciously and intelligently against.  Fuck 'em all!!

Nice post!!

In reply to by Honest Sam

lester1 Tue, 02/06/2018 - 12:43 Permalink

These hedge funds can't compete with the Federal Reserve's Plunge Protection Team who have unlimited funds to buy stocks and manipulate markets.