Are there warning signs in the US stock market? The veteran who correctly bet on market turmoil in 2008 returns

Zhitong Finance has learned that former hedge fund manager Steve Diggle, who made billions betting on market crashes during the global financial crisis, is returning to the market. He is ready to seize opportunities from market volatility again, as he believes the threats to market stability are unprecedented since 2008. Diggle's family office, Vulpes Investment Management, stated in a phone interview that the firm plans to raise $250 million from investors as early as the first quarter. Diggle's company made $3 billion between 2007 and 2008, and he is raising funds for a hedge fund and managed accounts designed to achieve high returns during market crashes and profit from betting on stock fluctuations during calm periods. The idea to create a new fund arose after the company developed a model using artificial intelligence to read vast amounts of public information. Diggle said it helps identify companies in the Asia-Pacific region that are highly likely to go bankrupt due to high leverage, asset-liability mismatches, or even outright fraud. The stock portfolio also includes single stocks or indices as bullish bets. "There are more fault lines currently, and the likelihood of problems has greatly increased, but the price of risk has decreased," Diggle stated, comparing it to the situation during over a decade of loose monetary policy. "Therefore, our situation is somewhat similar to that of 2005 to 2007." Potential triggers include overvaluation in the U.S. stock market, oversupply in the U.S. prime office market, rising federal debt, and tightening credit spreads. Diggle noted that a new generation of "bull market traders" who entered the industry after 2008 has pushed a small portion of U.S. tech stocks and cryptocurrencies to dizzying heights. He added that, at the same time, tools to hedge against crashes are also cheaper. In other aspects, he mentioned issues such as escalating geopolitical tensions. Diggle's company stated in a marketing document for the new fund that the growing presence of retail investors, passive investment funds, and high-frequency traders could exacerbate a collapse, just as they did in March 2020 and August 2024. After the closure of his former company, Artradis Fund Management Pte, in March 2011, Diggle made a significant move into the volatility trading space. In 2008, this Singapore-based hedge fund profited from bets on market crashes and banking issues, growing its assets to nearly $5 billion, but later became a victim of unprecedented central bank interventions that shifted the market Diggle once served as the head of several teams at Lehman Brothers Holdings and co-founded Artradis with Richard Magides in 2001. Before the financial crisis erupted, his company bet on soaring securities volatility using over-the-counter options and variance swaps purchased from banks. Artradis also accumulated credit default swaps (CDS) with a notional value of over $8 billion from banks that sold them tail risk derivatives. Part of its use was to hedge against the risk of banks being unable to fulfill obligations during market crashes, while another part was to bet on poor risk management by banks. Diggle stated that the settlement price of Lehman Brothers CDS was 367 times the price paid by Artradis after it filed for bankruptcy in September 2008, while the return on the same instrument from UBS was about 20 times. Hedge funds that purely bet on rising volatility often incur losses during calmer market days. Since the collapse of Artradis, Diggle's family office has invested in avocado orchards in New Zealand, real estate in Germany, a biotechnology company in the UK, and stocks that may benefit from Europe's rearmament following the outbreak of the Russia-Ukraine war. Diggle mentioned that while Vulpes has occasionally engaged in volatility trading over the years, it had not made serious efforts previously, partly due to a lack of trading opportunities that could help offset such losses. The capital structure arbitrage trades that Artradis used in its early years to subsidize losses from tail risk bets have become less profitable today. Now 60 years old, Diggle will no longer engage in daily trading but will choose to provide advice on overall risk management for the volatility portion. Robert Evans, who has worked at firms like Citigroup, will serve as the lead portfolio manager for the fund from Singapore. Diggle stated, "Trying to say the market will definitely crash in 2025 is a foolish game because that's human nature. However, everyone needs to start reconsidering hedging issues."