This star fund manager sees 2008 parallels as he returns to the volatility business

Steve Diggle, who previously managed Artradis and made $3 billion for investors during the 2008 financial crisis via a tail-risk strategy, is returning to the volatility business after a 14-year hiatus. Diggle's past success stemmed from being long volatility and short credit risk, capitalizing on mispriced risk in the credit-default swap market during the pre-crisis bull market, and he now sees parallels to that era.

Analysis

Steve Diggle, renowned for managing Artradis, Asia's once-largest hedge fund, is re-entering the volatility trading sphere after a 14-year hiatus. His prior success was marked by generating $3 billion for investors during the 2008 global financial crisis through a tail-risk strategy. This strategy, which involved being long volatility and short credit risk, with a particular emphasis on the nascent credit-default swap market, proved highly effective as markets experienced severe dislocations and asset prices collapsed due to the mispricing of risk in the preceding bull market. Diggle's return is underscored by his observation of parallels between current market conditions and the environment leading up to the 2008 crisis, suggesting a potentially bearish outlook. The mixed sentiment but bearish tone associated with this development indicates that while the market impact is moderate, the implications of a seasoned crisis-era manager returning are being noted with caution.

Key Decisions for Investors

• Investors should consider the implications of a manager historically successful in crisis periods re-entering the market, potentially signaling an anticipation of increased market volatility or a downturn.
• It may be prudent to review portfolio exposure to credit risk and explore strategies that could provide downside protection or benefit from heightened volatility, such as tail-risk hedges or positions in volatility-linked instruments.
• Monitor developments in credit markets and indicators of risk mispricing, given Diggle's past focus and his current assessment of similarities to the pre-2008 financial landscape.