36 South Capital Advisors is living up to its reputation as a volatility hedge fund.
The London-based firm has nearly doubled its volatility bets this year, and now has 90% of its US$626 million in assets in volatility plays on currencies, commodities and stocks, Bloomberg News reports. The firm is guessing that the longer quantitative easing goes on, the more spectacular market gyrations will be later.
"The central banks have been flooding the world with liquidity, which in a way confuses the pricing mechanism," 36 South founder Jerry Haworth said. "We got the feeling that the longer that it carries on, the subsequent volatility that will happen afterwards will be greater."
36 South's flagship Kohinoor volatility funds are down 2% this year.
"You buy a ticket to a life raft well before everyone else is clambering to get on," Haworth told Bloomberg. "When you have an opportunity to get a cheap ticket, you should buy it."
But that time is coming, Haworth said, noting that the small redemptions his firm saw last month are a possible harbinger.
"In a way, I've been looking forward to redemptions because they tell me that it's probably the last thing that happens before it turns."