Seems we were being a bit charitable when we wrote on Monday that Janet Tavakoli, of Tavakoli Structured Finance, was criticising the journalistic manner of men’s magazine GQ rather than Nassim Nicholas Taleb’s honesty. No. She really does have bones to pick with him.
Here’s her latest on the Black Swan man:
Before penning my previous commentary, I contacted Nassim Nicholas Taleb to check whether there were any inaccuracies in a Wall Street Journal article about the performance of his previous black swan fund, Empirica Kurtosis Ltd. The article said the fund had a 60% return in 2000 followed by “losses in 2001 and in 2002.” In 2003 and 2004 it had low single-digit gains, a period when hedge funds posted average returns of 20% and 9% respectively. The fund’s size was around $375 million when most of the assets were returned to investors.
In my query to Taleb, I also asked for confirmation that the fund experienced a voluntary wind-up… more on that later.
Taleb did not respond. Considered with his previous coy reply regarding GQ’s mythical $20 billion, I gave up hope of clarification. I enjoy debating philosophy, but debate is no substitute for size of actual gains.
I was particularly interested in Empirica Kurtosis’s reported anemic performance in 2001, because according to Taleb, the 911 terrorist attacks of 2001 were a “black swan” event.
How can a black swan fund do so poorly when the black swan finally appears?
Imagine a scenario: When the black swan appears, investors panic. The fund manager wants to cash in gains when volatility soars. Nervous investors want the manager to buy more “insurance,” when it is expensive and ill-considered. But investors should not be blamed for a black swan fund’s anemic performance any more than a pilot would blame nervous passengers for a bumpy plane ride. Management takes credit (and juicy fees) for the gains, so it should take responsibility for overall performance. This scenario may not be relevant for Empirica Kurtosis, but then, what is the explanation?
What about the voluntary wind-up I mentioned earlier?
Taleb’s web site stated EMPIRICA WAS NEVER CLOSED [emphasis in original]. That may be true if one is only referring to Empirica LLC, a risk management operation. But in my opinion, it is incomplete to assert this without mentioning the voluntary wind-up of Empirica Kurtosis Limited.
Taleb never responded to my query about the wind-up. The Bermuda-based trustee was more helpful and confirmed that Empirica Kurtosis Limited was indeed wound up in 2004/2005. …
You can read the rest of Tavakoli’s missive here.
We weren’t aware it was a secret that Taleb and his partner Mark Spitznagel wound up Empirica back in 2004. In fact, the WSJ mentioned it in a Monday story.
Related links:
Tavakoli takes down GQ, not Taleb – FT Alphaville
Fooled By Randomness – Nassim Nicholas Taleb website
Tavakoli Structured Finance – Janet Tavakoli website