Black Swan to Launch New Macro Fund

http://www.bloomberg.com/news/2011-...id-to-start-1-billion-macro-options-fund.html

Black-Swan Investor Universa Said to Seek $1 Billion for New Macro Fund

By Miles Weiss - Sep 26, 2011 11:00 PM CT

Universa Investments LP, a hedge fund that aims to protect clients against market cataclysms known as black swans, is seeking $1 billion for a new macro fund that will try to capitalize on mispriced options, according to a person familiar with the matter.

Universa, which has about $6 billion under management, will market the fund as one that specializes in convexity, the term for investments that risk little capital yet have the potential for big payoffs, said the person, who asked not to be identified because the firm is private. The Universa Convex Macro Fund will make bets primarily by purchasing options on benchmarks such as the Standard & Poor’s 500 Index, as well as individual commodities, currencies, stocks and other financial instruments, the person said.

The fund will seek to profit from macroeconomic developments by combining the best ideas from investment partnerships that the Santa Monica, California-based firm has set up to protect clients against specific types of tail risks, such as inflation and stock market declines, the person said. Rising volatility in recent months has spurred demand for macro- type investments, as well as protection against unforeseen events.

Mark Spitznagel, 40, Universa’s president and chief investment officer, declined to comment when asked about the new fund. He said, in general, “the types of exposures where we find the greatest edge also work as very good hedges against extreme risks, such as stock market crashes.”
Gold Puts

“Taken together, they offer an advantageous way to play many potentially large macro moves,” he said yesterday in a telephone interview.

The most recent example of Universa’s convexity-based strategy came earlier this month as gold prices tumbled as much as 20 percent. Universa’s inflation funds are up almost 20 percent in September -- and more than 35 percent for the year -- after purchasing options betting that gold prices would decline, the person said.

Universa generally uses mathematical formulas to find options that are bargain priced relative to the potential payout they would provide should markets shift. In purchasing put options on gold, the firm paid a fixed fee in return for the right to receive rising payments as the metal’s price declines below a specified level.

“The prices of gold puts was ridiculously low,” Spitznagel said.
Empirica Capital

Before starting Universa, Spitznagel co-managed a black- swan hedge fund called Empirica Capital LLC with Nassim Nicholas Taleb, the author and New York University professor. Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable,” has sold more than 3 million copies and helped spur the market for tail-risk funds, or those that protect investors against results that fall outside normal statistical distribution.

Universa has typically started individual partnerships for specific clients, including sovereign-wealth funds, rather than pooling investor money in a single fund. Universa Convex Macro will probably gather money from existing clients as well as new investors, the person familiar with the fund said.

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net