Steve Diggle, a former hedge fund manager renowned for his firm’s multibillion-dollar gains during the 2008 financial crisis, is setting his sights on new opportunities amid heightened market volatility. Through his family office, Vulpes Investment Management, Diggle is seeking to raise up to $250 million in early 2025 to capitalize on what he views as the most significant threats to market stability since the 2008 crash.
Raising Funds to Predict Crashes
Diggle, whose firm Artradis Fund Management made $3 billion during the global financial meltdown, is launching a hedge fund and managed accounts aimed at delivering strong returns during market downturns. The new fund employs an artificial intelligence model developed to analyze large volumes of public data and identify Asia-Pacific companies at high risk of financial blow-ups. These risks include excessive leverage, asset-liability mismatches, or outright fraud.
“The number of fault lines out there today are greater, and the chances of something going wrong are significantly greater, but risk prices have come down,” Diggle explained, comparing today’s market conditions to the pre-2008 era of easy monetary policies.
The fund will take both bullish and bearish positions on individual stocks and indices, combining volatility trading with equity portfolio management.
Flashpoints and Market Risks
Diggle pointed to several potential flashpoints that could destabilize markets, including the inflated valuations of U.S. technology stocks, a glut in prime office spaces, elevated federal debt levels, and tight credit spreads. He also highlighted the role of retail traders and passive investment funds in driving market extremes.
“A new ‘bull market generation’ of traders, who entered the industry after 2008, has propelled U.S. technology stocks and cryptocurrencies to unsustainable levels,” he said. “Meanwhile, it’s cheaper to buy instruments to protect against routs.”
Geopolitical tensions and China’s shadow banking challenges further compound market risks, according to Diggle. These factors, combined with the growing influence of high-frequency traders, are likely to amplify market routs, as seen in March 2020 and August 2024.
A History of Betting on Volatility
Diggle’s previous firm, Artradis, gained fame for profiting from spikes in market volatility. At the height of the financial crisis, the firm used over-the-counter options and variance swaps to bet on swings in securities. Artradis also amassed credit default swaps with a notional value exceeding $8 billion, betting on poor risk management by the very banks selling those derivatives.
Despite its success, Artradis shut down in 2011 after unprecedented central bank intervention stabilized markets, diminishing the firm’s strategy’s profitability. Since then, Diggle has diversified his investments, funding ventures such as avocado orchards in New Zealand, German real estate, UK biotechnology firms, and stocks linked to European rearmament following Russia’s invasion of Ukraine.
Preparing for the Next Wave
As Diggle positions Vulpes Investment Management to navigate today’s turbulent markets, he remains convinced that the risks and opportunities of 2025 could rival those of the global financial crisis. “The number of fault lines out there today are greater, and the chances of something going wrong are significantly greater,” he reiterated, emphasizing the importance of his new AI-driven approach to navigating volatility.
