Steve Diggle, co-founder of volatility hedge fund Artradis Fund Management, which scored a US$2.7 billion ($3.6 billion) trading gain between 2007 and 2008, is sitting on the sidelines this time as bank woes rock markets.
While he doesn’t see systemic risk akin to the global financial crisis, the “imprecise and impossible to quantify” investor sentiment is keeping him from putting on a trade, said Diggle, who now invests money for his family office Vulpes Investment Management.
“The man in the street has no understanding of the nuances of these idiosyncratic bank failures and the ghost of 2008 has not been laid to rest,” he said. “As Keynes rightly observed, ‘markets can stay irrational longer than you can stay solvent.’”
The wipeout of investors of Credit Suisse Group AG’s riskiest bonds is threatening to send the US$275 billion European market for bank funding into a tailspin. It came on the heels of the sudden collapse of Silicon Valley Bank and Signature Bank earlier this month, which triggered a global slump in banking stocks.
“SVB, Signature & CS don’t seem to have anything in common with each other and don’t represent a ‘systemic’ problem,” he added.
While some macro funds were caught on the wrong side of the subsequent “bond meltup” and suffered crippling losses, the financial system remains sound, he added. Veteran macro trader Adam Levinson is shutting down his Graticule Asia macro hedge fund after it lost more than 25% this year, mostly during the days following the SVB collapse.
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“In fact, the average pension fund is much better off than they were two weeks ago,” he said. “With interest rates 75 to 100 basis points lower, things should be fine.”
