Ex-SAC Hong Kong trader readies hedge fund to bet on price swings
Miaodan Wu, a former portfolio manager at billionaire Steven A. Cohen’s hedge fund SAC Capital Advisors, is preparing to launch his own hedge fund in Hong Kong to bet on price swings in financial securities, people familiar with the matter told Reuters.
Wu was among at least seven SAC Capital staff who left Hong Kong this year, at a time when Cohen and his firm are drawing increased scrutiny in the US government’s long-running investigation into insider trading.
Known in the industry as “Dr Wu,” his hedge fund, named Bach Option, will launch by the end of this year, said three sources who could not confirm the start-up capital as the plan was at an early stage. The amount of money he plans to raise is not yet clear.
The hedge fund will bet on volatility, which refers to the rate of change in the price of a financial asset.
That strategy is currently out of favour as volatility has collapsed due to quantitative easing by central banks, though it helped Artradis Fund Management grow into a $4.5 billion hedge fund in Asia during the financial crisis, making it the most successful volatility hedge fund in Asia ever.
Still, last week’s stock market swing in Japan, which raised the volatility index tracking the Nikkei 225 by nearly 60 per cent on May 23 alone, may draw investors to such funds.
The main Artradis funds made $2.7 billion for investors between 2002 and 2009, mostly during the financial crisis when volatility rose, but shut down in 2011 after double-digit losses in the prior two years.
The VIX, a 30-day risk forecast of stock market volatility based on the S&P 500 Index options, rose to a record high of 80.86 in November 2008. The index dropped by just over a fifth this year to 13.99 on May 24.
While it’s possible for volatility funds to make money in all market conditions, super-sized returns are possible only in times of stress.
Wu, who worked for SAC between 2006 and this year, has hired Henry Ondo, who earlier was an equity derivatives sales executive at Citigroup Inc.
E-mails to Ondo remained unanswered. Sources declined to be named as they were not authorised to speak on the plan.