Whether you believe the gaudy gains are real or not, it’s clear that some “crisis hunters” have a secret sauce that offers value to investors beyond conventional tail-risk strategies.
Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms.
It’s raining money at some hedge funds.Photographer: Mary Turner/Getty Images
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A long-running debate among Wall Street quants is how good Universa Investments LP’s tail-risk portfolio is, and whether the hedge fund’s claims about that performance are misleading. Bloomberg News reporter Justina Lee covered the dispute in an article this week titled “Black Swans, Angry Hedge Funds, and How to Make a 3,612% Return.” The first thing to know about Universa is that it is closely associated with Black Swan author Nassim Taleb and that the controversy stretches back to the hedge fund Taleb ran personally before becoming a “Distinguished Scientific Adviser” to Universa.
Wall Street Journal reporter Scott Patterson kindly sent me an advance copy of his forthcoming book Chaos Kings that will do much to settle the issue. Patterson interviewed and got substantial new detail from both Universa founder Mark Spitznagel and his critics, as well as from a handful of other successful innovators who reverse standard investment thinking, which means designing strategies for normal times with precautions built in to survive chaotic ones. Patterson’s Chaos Kings instead design strategies for “lottery-ticket” wins during unexpected crashes with precautions built in to limit the “bleed” losses they suffer in normal times. Spitznagel wrote his own book, Safe Haven , but that gave no relevant new information on the issues that are at the heart of the dispute about returns.