36 South Launches Delayed Tail-Risk Hedge Fund

Oct 2 2012 | 1:50pm ET

36 South Capital Advisors has waited more than a year to launch a successor to its hugely-successful "black swan" hedge fund. The moment finally arrived yesterday.

The London-based hedge fund rolled out its Black Eyrar Fund yesterday with US$20 million in initial capital. The money was raised from both new and existing investors, Hedge Fund Review reports.

36 South closed its Black Swan Fund in 2009 after returning 204% to investors the year before. The firm planned to launch Black Eyrar last summer, but put it on hold after volatility spiked.

The new long-volatility tail-risk vehicle aims to profit from extreme-downside events, co-founder Richard Haworth told HFR.

The long-dated options Black Eyrar is buying "tend to be massively overvalued or massively undervalued. When they are massively undervalued, you get the most convexity or the most bang for your buck of all the tail-risk hedging instruments out there."

"Central banks piling more debt onto a very indebted financial structure leads to more financial instability in the medium to long term even though in the short term there has been a suppression of volatility," Haworth told HFR. "We believe volatility and the level of debt go hand in hand. Looking forward there is a greater likelihood there will be significant volatility."

Black Eyrar has a €1 million minimum investment requirement. The first €100 million will be subject to a 1% management fee and 10% performance fee; assets above the level will pay 2% and 20%.

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