Universa Investments

Universa Investments ("Universa") is an American investment management firm headquartered in Miami, Florida. It is known as a Black Swan fund that focuses on risk mitigation to protect investors from sharp market downturns.[3][4][5][6][7]

Background

Universa Investments was founded in January 2007 by Mark Spitznagel with Nassim Nicholas Taleb acting as its advisor.[8][4][5][6] The two of them previously ran Empirica Capital, a hedge fund that closed in 2004 due to subpar returns.[8][9][6] Universa was launched with $300 million under management and traded out of a small office in Santa Monica, California.[8][4] Software programs were developed to search the options markets for deals.[4]

Universa and Empirica followed the Black swan theory which was about unexpected extreme events that have significant impact on the world and the financial markets.[8][4][9][5][6][7] The strategy would be to buy out-of-the-money put options at low prices during periods the financial markets are good to protect the firm's position when there is a market downturn.[8][4][9][5][6][7] While this strategy did not work with Empirica due to a period of low volatility, it worked well for Universa due to the 2008 financial crisis.[8][5][6] Universa purchased put options on the S&P 500 and financial companies such as Goldman Sachs and American International Group which the firm sold for a significant profit after the prices fell.[8] In 2008, Universa had returns over 100% and its assets grew to $6 billion under management in 2009 as more investors approached Universa to provide protection to their investments.[4][5][6]

There was speculation that Universa purchasing large amount of puts options on the S&P 500 Index may have been one of the primary causes of the 2010 flash crash.[10]

In September 2011, Universa was stated to be raising $1 billion to start a Macro fund.[9]

On March 1, 2014, Universa moved its headquarters from Santa Monica, California to Miami, Florida to take advantage of the city's business and tax policies.[11]

During the 2015–2016 stock market selloff, Universa had a return on 20% in August 2015 which resulted in a $1 billion gain.[5][6]

In 2017, CalPERS hired Universa to provide tail risk hedging protection to its investments.[12][13] In 2020, CalPERS terminated Universa's role citing it had found cheaper and better alternatives.[12][13]

In 2018, The Wall Street Journal reported that "a strategy consisting of just a 3.3% position in Universa with the rest invested passively in the S&P 500 index had a compound annual return of 12.3% in the 10 years through February (2018), far better than the S&P 500 itself" (and portfolios with "more traditional hedges").[14]

In March 2020, Universa, in a letter to investors, estimated it had a return of 3,612% on invested capital in its strategy due to effects caused by the COVID-19 pandemic.[15][16][17]

External links