The $20 Billion Claim

A recent GQ article made headlines by quoting Nassim Nicholas Taleb as claiming extraordinary gains during the market downturn: “we made $20 billion for our clients, half a billion for the Black Swan fund.”

When I contacted Taleb directly to verify this staggering figure, his response was telling. “The quote is inaccurate,” he replied via email. “The 20 billion might correspond to the face value of positions.” This clarification is both vague and fundamentally different from the mythical $20 billion in actual gains reported by GQ. The real gains could be a tiny fraction of what Taleb loosely describes as “face value.”

Why This Matters

Public claims of enormous hedge fund gains require credible documentation, particularly when they could serve as de facto advertising. GQ’s error—whether referring to outside clients or the black swan fund itself—could attract investors based on misleading performance data.

Understanding the distinction between “face value” and actual returns is crucial for potential investors. Face value represents the notional amount of derivative positions, not the profit generated from those positions.

The Black Swan Strategy Reality

Black swan funds typically buy out-of-the-money put options on stocks and broad market indices to hedge tail risk. This strategy inherently produces long periods of mediocre or negative returns, punctuated by occasional large gains. The timing and duration of these gains remain unpredictable.

Several challenges plague this approach:

Scaling Problems: A fund might achieve 100% returns on $100 million but lose 10% on $1 billion. Initial success rarely scales proportionally.

Performance Variability: The strategy may produce future huge gains, but it could also generate mediocre returns or slowly burn cash for extended periods before the next big payday.

Timing Uncertainty: The waiting period for significant gains could be brief or longer than an investor’s investment horizon.

The Mathematics Don’t Add Up

Jim Rogers, whose credible track record lends weight to his observations, highlighted a critical flaw in the numbers. If the “$20 billion” referred to notional derivative amounts that produced only $250-500 million in gains, that represents a mere 1-2% return. As Rogers noted, “that’s peanuts.”

For a black swan fund with reportedly $300 million under management in January 2007, executing trades with $20 billion in face value should have captured far more than 1-2% of notional value during the significant market moves of that period.

Strategy Questions Remain

The large notional amounts with minimal gains raise fundamental questions about execution:

Counterparty Risk: Using over-the-counter derivatives would create substantial counterparty credit risk requiring additional hedging—inconsistent with black swan fund principles.

Market Inconsistencies: If the strategy included shorting stocks, it could produce large losses during market upturns, contradicting the fund’s supposed risk profile.

Efficiency Issues: Deep out-of-the-money puts can be purchased cheaply on large notional amounts, making the poor gain-to-notional ratio puzzling.

Conclusion

The pattern is familiar: after major market moves, winners emerge claiming prescience rather than luck. While black swan strategies may have merit, extraordinary claims require extraordinary evidence.

The siren song of enormous gains remains enticing, but investors should scrutinize the actual performance data behind the headlines. In this case, the actual swan song appears notably off-key.

Update July 31, 2009: Jim Rogers’ commentary reinforced the mathematical inconsistencies in the reported gains, highlighting that a 1-2% return on $20 billion notional raises significant strategy and execution questions that remain unanswered.

About the Author

Janet Tavakoli is the president of Tavakoli Structured Finance founded in 2003. She is a globally recognized structured finance expert and derivatives authority who has advised financial regulators, testified as an expert witness in major financial litigation, and authored definitive works on credit derivatives and securitization.

For comprehensive analysis of structured finance products and securitization strategies, consult Tavakoli Structured Finance.

Related Articles

Nassim Taleb’s Black Swan Fund Strategy Fail (2025 Update)

Michael Lewis vs Wall Street Reality: Expert Analysis

Wall Street Fraud and Solutions to Systemic Risk

Bill Ackman and the MBIA Confidence Game; A Big Short

“Dead Man’s Curve“

Facebook IPO Analysis: Fake Users and Investment Lessons

Financial Media Commentary: When Watchdogs Fail to Bark – July 21, 2025. Originally published as separate commentaries 2009-2014. Consolidated and Updated 2025.