Nassim Taleb: Advised Tail Risk Fund Returned 3,600% in March

Johnny HopkinsNassim Taleb4 Comments

Here’s an article from Bloomberg which reports that a tail-risk fund advised by Nassim Taleb returned a staggering 3,612% in March. Here’s an excerpt from the article:

A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices.

The fund, managed by Universa Investments of Miami, had a year-to-date return of 4,144% through the end of last month, according to an investor letter from President and Chief Investment Officer Mark Spitznagel that was obtained by Bloomberg. He said Universa was able to cash in many of its positions, locking in the gains, while also keeping in place protection against more equity sell-offs, “one of the tricks of the trade.”

“Looking ahead, the world remains very much trapped in the mother of all global financial bubbles,” Spitznagel, 49, wrote. “It’s the systemic vulnerabilities created by this unprecedented central-bank-fueled bubble, and the crazy, naive risk-taking and leverage that accompanies it, that makes this pandemic so potentially destructive to the financial markets and the economy.”

Tail-risk hedging isn’t an investment strategy in itself. Instead, Universa tells clients to think of it as catastrophe insurance that allows them to pursue returns more aggressively, without the need for more traditional approaches to risk mitigation such as diversifying assets and holding Treasuries, gold or hedge funds.

Taleb, in a March 30 interview on Bloomberg Television, said a pandemic like the coronavirus outbreak was predictable and investors who weren’t hedged paid the price with steep losses. What’s impossible to predict is the timing of such an event, he said, which is why insurance must be in place at all times.

“I think we’ve shown Universa’s method of risk mitigation to be the most effective,” Spitznagel said through an outside spokesman. “But it is also very unconventional. Most people tend to prefer the conventional over the effective.”

Spitznagel included a chart in his letter showing that a portfolio invested 96.7% in the S&P 500 and 3.3% in Universa’s fund would have been unscathed in March, a month in which the U.S. equity benchmark fell 12.4%. The same portfolio would have produced a compounded return of 11.5% a year since March of 2008 versus 7.9% for the index.

“Anyone can make money in a crash; it’s what they do the rest of the time that matters” Spitznagel wrote. “The totality of the payoff is what creates the portfolio effect.”

You can read the original article here: Bloomberg: Nassim Taleb-Advised Universa Tail Fund Returned 3,600% in March.

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4 Comments on “Nassim Taleb: Advised Tail Risk Fund Returned 3,600% in March”

  1. That’s what I assumed, nothing more complicated than that. And yes, 10yrs between extreme events is a long time to burn money on fees and premium. Cheers

    1. Sure. But is isnt 10 years. End of 2018 was a disaster. Recovered quickly, but it may not have. Same with 2012 and 2015, where the VIX spiked and the SPY dropped 5-10% very quickly. This fund would have spiked then too.
      And the article states that investing only 3% of your money into this fund would have returned 3%+ more than the SPY compounded since March of 2008. If invested after the recession, just this event would have paid for the slow loss of value over time.

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