“The Wizard of Oz” Among Big Winners of Market Crisis

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Greg Coffey, the Australian hedge fund star once nicknamed the “Wizard of Oz,” has emerged as one of the big winners in this month’s market sell-off, according to three people familiar with the matter.

Kirkoswald Capital, the firm Coffey founded in 2018 aVsceker he came out of retirement and now manages about $8 billion, made hundreds of millions of dollars during the recent market downturn, two of the people involved said.

The company was positioned for a global economic slowdown and increased volatility, the people added. Kirkoswald declined to comment.

Tokyo’s Topix index fell more than 12 percent on Monday, marking the sharpest sell-off since “Black Monday” in October 1987, before recovering sharply on Tuesday.

The Vix index, the market’s “fear gauge” that shows how much investors expect U.S. stocks to swing in the coming month, rose on Monday to its highest level since the coronavirus pandemic began in early 2020.

The broad sell-off was triggered by the Bank of Japan’s surprising decision last week to raise interest rates, a retreat from the expensive U.S. technology stocks that dominate the market and fears that the U.S. economy may weaken more rapidly than previously thought.

British investment firm Ruffer, which manages more than $27 billion in assets, was another investor to profit from the crisis, having long warned of an impending market crash. The firm’s hedge fund, Ruffer Investment Company, has risen more than 4 percent since the beginning of July, according to data provider FactSet.

Ruffer benefited from a long position in the yen, which has strengthened significantly against the dollar in recent weeks, and positions in a number of so-called safe-haven assets, such as gold.

At large multi-manager hedge funds, which employ dozens of teams trading multiple asset classes, portfolio managers have run into limits designed to mitigate losses and have been forced to close positions.

As the Japanese currency strengthened and stocks began to sell, other investors also had to abandon the popular “carry trade” of borrowing money in yen and investing it in high-yield assets.

“There was this idea for a while that you could borrow money in yen, which cost next to nothing, and invest it in an asset of your choice, where the cost of borrowing was lower than the return you could get on those assets,” said Matthew Brett, an investment manager in the Japanese equities team at Edinburgh-based investment manager Baillie Gifford.

“Obviously those yields are not sustainable forever and as the currency has strengthened there has been a sense of unease for anyone doing that type of trade,” he added.

Warren Buffett’s Berkshire Hathaway is one of the most high-profile foreign investors in Japanese companies. The conglomerate has repeatedly increased its stake in five of the country’s trading houses, namely Mitsubishi Corporation, Mitsui & Co, Itochu, Marubeni and Sumitomo Corporation, which have been caught up in the crisis.

However, Berkshire has remained invested for the long term, and in this year’s annual letter to shareholders Buffett said that unrealized gains from the holdings amounted to about $8 billion before the latest turbulence hit.

Meanwhile, Bridgewater Associates, the world’s largest hedge fund, had promoted Japan as one of the few markets capable of diversifying investors’ portfolios.

In a note earlier this year, Karen Karniol-Tambour, the hedge fund’s co-chief investment officer, said that because “exposure to China is limited for some investors, Japan represents the greatest diversification opportunity today.”

Further information provided by Alan Livsey from London