In the unpredictable landscape of global finance, few figures have garnered as much attention as Steve Diggle, a former hedge fund manager who capitalized on the chaos of the 2008 financial crisisBy betting against the market, he amassed billions in profits during one of the most tumultuous periods in economic historyNow, as the markets show signs of volatility reminiscent of that era, Diggle is poised to make a comeback, launching new investment strategies through his family office, Vulpes Investment Management.

Vulpes is set to raise $250 million from investors in the upcoming quarter, a reflection of Diggle's bullish outlook on potential market disruptionsThe firm’s track record is remarkable; during the peak of the 2007-2008 crisis, Diggle's previous venture earned a staggering $3 billion by predicting massive market collapsesHis current fund aims to replicate this success by not only seeking high returns during market downturns but also by capitalizing on opportunistic trades during stable times.

A significant component of Diggle's strategy involves the integration of artificial intelligence, which the firm claims can sift through vast amounts of public data to detect emerging risks

This technology has already flagged several companies in the Asia-Pacific region that may be on the brink of failure due to excessive leverage, mismanagement of assets, or outright fraudAs markets warp under pressure from economic factors, Vulpes is adapting its approach, scrutinizing both macroeconomic trends and specific stock performances.

Diggle explains that the current financial landscape is fraught with fault lines, and while the likelihood of another major disruption has grown, the pricing of associated risks has decreased dramaticallyHe draws parallels between the present situation and the pre-crisis period of 2005 to 2007, suggesting a similar atmosphere of complacency mixed with deep-seated vulnerabilities.

Key indicators of potential instability loom large, including overvaluations in U.Sequities, an oversupplied prime office market, increasing federal debt, and the tightening of credit spreads

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The wave of new traders who joined the market post-2008, dubbed "bull market traders," have driven certain tech stocks and cryptocurrencies to dizzying heights, indicating a possible replication of past folliesYet, the tools that investors can use to hedge against such downturns are now more accessible, and Diggle aims to leverage this to his advantage.

The complexities of today’s market dynamics are compounded by geopolitical tensions that could further destabilize financial marketsIn promotional materials for his new fund, Vulpes warns that the growing influence of retail investors, the rise of passive investment funds, and the activities of high-frequency traders could all serve to amplify losses in a crisis, just as they did during the heights of volatility in March 2020 and August 2024.

Steve Diggle’s journey through the financial industry is characterized by both high stakes and formidable setbacks

After the closure of his previous company, Artradis Fund Management, in March 2011, he pivoted towards trading volatilityArtradis, a Singapore-based hedge fund, had grown its assets close to $5 billion by successfully betting on the failure of banks and the ensuing market downturn during the 2008 crisisHowever, the unprecedented interventions by central banks ultimately led to the firm’s downfall.

Before delving into hedge fund management, Diggle was a senior executive at Lehman Brothers, where his keen insights into risk and volatility strategy were cultivatedHe co-founded Artradis with Richard Magides in 2001, during which the firm employed a range of strategies, including the purchase of over-the-counter options and variance swaps to bet on price fluctuations in securities before the crisis unfolded.

A significant segment of Artradis' strategy involved accumulating credit default swaps (CDS) against banks, which saw a notional value exceed $8 billion

These derivatives were used partially to hedge against systemic risks within the banking system and partially to speculate on the banks' risk profiles, which, as history has shown, were alarmingly flawed.

When Lehman Brothers collapsed, the payout on its CDS contracts turned out to be exorbitantly profitable for Diggle's firm, with the settlement rates reaching 367 times that of the values taped just before their bankruptcy.

However, trading in such a speculative manner on rising volatility can lead to significant losses during calmer market periodsFollowing the demise of Artradis, Diggle's family office ventured into unconventional investments, including avocado orchards in New Zealand, real estate in Germany, and biotechnology stocks in the UK, navigating the winds of change in search of secure returns.

Despite years of dabbling in volatility trading intermittently, Diggle admits that his prior strategies did not fully capitalize on this sector’s potential largely due to a lack of offsetting tools