Janet Tavakoli, fresh off of debunking an erroneous Nassim Taleb stat in a GQ article, is back with another critical piece, this time asking a very interesting question: Why didn’t Taleb make any money with his old fund, Empirica Kurtosis, after 9/11, which he’s described as a mother of all “black swans.” According to Tavakoli, Empirca Kurtosis wound down in 2004-2005, though Taleb has been silent on this.
Tavakoli’s theory — which she doesn’t prove — is that the fund didn’t have total control over client money, a structure completely ill-suited to a vehicle intended to make money off of rare events.
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?
As for the wind-down itself, she says:
Taleb’s web site stated EMPIRICA WAS NEVER CLOSED [emphasis in original].2 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.
Fine, maybe Taleb’s just an ideas guy and doesn’t want to talk about returns, or he thinks that things like “money” and details are just a distraction. But he obviously is willing to attach his brand to funds, while slamming others when they lose money, so we think it’s all fair game.
Tavakoli’s full piece is embedded here.