Univera Investments manager Mark Spitznagel, who specializes in defending against the so-called “black swan” phenomenon in the market, is convinced that even after the correction in Big Tech stocks and the sharp rise in U.S. government bond yields, investors still don’t understand the risk they are taking in the stock and bond markets, Bloomberg writes.

He said asset prices have been grossly inflated for years because of near-zero interest rates and quantitative easing measures. His Universa fund suggests clients think of hedging not as a source of profit, but as a kind of insurance against imminent catastrophes that they should always have. Knowing that they are protected in the event of a market crash, investors can theoretically take the risk without the need for traditional diversification in the form of buying Treasuries, gold or turning to hedge funds.

GMO’s Jeremy Grantham warned of a looming market disaster in the form of a “superbubble” ready to burst at any moment. He noted that the collapse had already begun since November and advised getting rid of US stocks, owning commodities and gold, and holding cash.

But as wild as the stock swings may seem, they were not sharp enough in the early weeks of this year to trigger the hedging that brought unforeseen profits to Universa customers at the start of the pandemic period. In March 2020, when the pandemic hit and many stocks collapsed and volatility spiked, Universa was able to make huge profits on its options trades. It told clients that they realized a return of 3,612% that month and 4,144% in the first quarter of 2020.

The California State Employees Retirement System was one such client, but it dropped one of those policies and missed out on a $1 billion payout.

At the time, Universa was protecting about $6 billion in client assets. That amount has since grown to more than $15 billion.