'Black Swan' hedge fund Universa reaps 100% return amid tariff chaos, investor says
NEW YORK (Reuters) -"Black Swan" hedge fund Universa Investments posted a 100% return on capital in a turbulent April for markets as U.S. President Donald Trump's administration unveiled new tariff-based trade policies, an investor who allocates money to the fund told Reuters.
A so-called tail-risk hedge fund with $20 billion in assets under management, Universa specializes in risk mitigation against "black swan" events - unpredictable and high-impact drivers of market volatility.
Funds of its kind use cheap credit default swaps, stock options and other derivatives to profit from severe market dislocations, like an insurance policy.
Universa's founder and Chief Investment Officer Mark Spitznagel declined to comment on the fund's performance in April.
He told Reuters he believes financial markets will perform in a Goldilocks zone for a while, with the economy not growing too fast or too slow, before further turbulence.
"I expect a euphoric high before it is over, but when that happens... it's going to be the worst crash I think that we will have seen in our lifetime," he said, adding U.S. stock markets could fall 80%.
He said he saw April's market turbulence as a "temporary blip."
Universa - which counts "The Black Swan" author Nassim Nicholas Taleb as its distinguished scientific adviser - tends to perform well when unexpected events happen, posting a roughly 4,000% gain in March 2020 as stocks worldwide sank as the COVID-19 pandemic broke out.
Spitznagel said the tariffs may have a recessionary impact on the economy at a time that the Federal Reserve is keeping interest rates at historically high levels.
"The Fed is way behind (the curve)," he told Reuters. "Despite a slowing economy, (Chair Jerome) Powell's holding the line."
Last week the Fed held rates steady in the 4.25%-4.50% range, citing a cloudy economic outlook amid tariff threats, as risks of both higher inflation and unemployment had risen.
The Fed hiked rates aggressively in 2022 and 2023 to tame a surge in inflation, a process that Spitznagel sees as the beginning of a pop in the economic bubble after years of monetary easing that drove investors to riskier assets.
"This crash is going to come eventually," he said.
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