We have already mocked the so-called marquee “hedge” funds for their deplorable August performance to the point where there is little to add, suffice to repeat that one really should i) scrap the phrase “hedge funds” entirely and just call these formerly insider trading and colluding vehicles “massively beta-levered funds who pray every day that the Fed does not lose control” and ii) stop paying 2 and 20 for under-performing the S&P for seven years in a row.

Because after August one thing is clear: nobody actually hedges (and why should they: the LP already has collected all the upside, while the downside loss is all other people’s money) and if the market crashes, hedge fund LPs funds will not only suffer outsized losses (while under-performing stocks on the way up) but also be promptly gated and have no access to any funds until the Fed (hopefully) bails out the financial system once again.

Of course, not every asset manager falls in the above generalization; only about 98%. There are some outliers, such as Mark Spitznagel’s Universa which as mocked the so-called marquee “hedge” funds made a whopping $1 billion profit on the one day when the market crashed and countless hedge funds not only lost billions but were margined out on their profitable positions.

Another hedge fund that actually hedges against the kind of fat tail event that nobody else had even remotely considered, is Artemis Vega Fund, whose exemplary writings and market analyses have repeatedly appeared on these pages. 

In Artemis most recent letter from July 18, the founder Christopher Cole when discussing “the greatest collapse in the history of the VIX index” said:

I can only point to government intervention as the core reason. I firmly believe that this moral hazard produces a hidden leverage and “shadow market gamma” that at some point will result in a sustained volatility outlier event in the opposite direction.

One month later, he was proven to be 100% correct. As the following letter to investors released earlier reveals, the fund made a whopping 15.5% on September 1, 2015, the day the S&P dropped 3%. Which, for those who have forgotten, is what is really known as hedging.

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