Making millions from chaos: the fund cashing in on the stock market collapse ~ Financial Times

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Saturday, March 3, 2018

Making millions from chaos: the fund cashing in on the stock market collapse


Traders react to market volatility on the floor of Chicago Board Options Exchange. Photograph: Scott Olson/Getty Images
Stock markets gyrated wildly this week, and a lot of people lost a lot of money. But Chris Cole, a 38-year-old hedge fund manager from Texas, wasn’t one of them. He made millions from his fund’s bet on a financial apocalypse.
From his office overlooking the Colorado river in Austin, Texas, Cole runs Artemis Capital, a hedge fund that, since 2012, has been betting on a repeat of the 1987 Black Monday stock market crash.
Cole’s Artemis Vega fund, which he started with $1m and has now attracted nearly $350m of investors’ cash, is designed to “generate opportunity from chaos” – and he believes there is far more chaos coming.
His bets paid off this week as global stock markets collapsed, rallied and then fell again. Artemis is designed to benefit from such periods of turmoil and volatility. Market volatility, measured by the Chicago Board Options Exchange (CBOE) Volatility index known as Vix or the “fear index”, spiked 84% on Monday – the biggest one-day increase since the 1990s. It hit 50 on Tuesday and was around 30 on Friday, far higher than it has been for the last two years when it only poked above 15 a couple of times.
“It’s been a good week,” Cole said in a interview with the Guardian. “The explosion in the Vix and the rise in volatility is something we have been predicting, and waiting for, for a long time. We were well prepared to benefit from it.”
Cole was unable to say exactly how many millions his fund has made this week due to regulatory constraints, but he thought his investors would be “very pleased”.
He said Wall Street investors had been calling up all week to congratulate him on calling the market collapse. But Cole reckons that this week’s 1,500 point fall in the Dow Jones Industrial Average is “just the beginning”.
“The entire global financial system is an Ouroboros – a snake eating its own tail,” he said.
Cole has some dire predictions: “We are going to have a full-blown financial crisis on the same level as the last one, if not worse. I’m not saying the world is going to end in the next two weeks, but I would be surprised if it doesn’t happen in the next two years.”
Cole, who wears a watch which encourages him to live every day to the fullest by counting down his expected life expectancy, said the “blow up this week in short-volatility funds [which were betting that markets would remain tranquil] is just the canary in the coal mine.”
He said about $5bn is invested in Vix ETPs (exchange traded products) betting on stable markets, “but what people should be afraid of is a disorderly unwind of the much larger $1.5-2tn [invested] in financial engineering strategies that are leveraged to low volatility.” 
Chris Cole, Artemis fund founder.
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 Chris Cole, Artemis fund founder. Photograph: youtube
Cole said the collapse in Vix ETPs was analogous to the quant hedge fund meltdown of 2007, which preceded the 2008 financial crisis. “I do think another crisis of that magnitude will occur in the next few years.”
Cole said he has not worked out how much money he has personally made from his own money invested in Artemis, but joked: “If the market sells off the way I think it will, maybe I’ll buy a Bond-villain style base on a volcanic island in the Pacific.”

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