The hedge fund business Artradis Fund Management, based in Singapore, which made $2.7 billion in profits in the volatile years of 2007 and 2008, is closing down after it lost money from wagers on price swings in the last two years, the firm has confirmed to this publication.

Money held in the Artradis AB2 Fund will be refunded to investors by the end of February, said co-founder Stephen Diggle. The firm hopes to return money in its Artradis Barracuda Fund by the same date as it awaits investors’ vote to wind up the fund, he was quoted saying in an interview with Bloomberg yesterday. The volatility funds are “substantially in cash,” he said.

Under the changes, Diggle reportedly plans to convert his family office, Vulpes Investments, into an  investment management firm by the spring of this year and take over the Artradis Russian Opportunities Fund and the Artradis Testudo Fund, which only has partners’ money.

Artradis, which managed about $800 million as of 31 December compared with about $4.5 billion in January 2009, outperformed in declining markets by using options contracts to trade volatility, according to the news service. The MSCI Asia Pacific Index has doubled since 9 March 2009, when it sank to a near-six-year low following the September 2008 bankruptcy filing of Lehman Brothers

The two funds managed by Artradis seek to produce uncorrelated market returns by trading on securities and other instruments that thrive on volatility, such as options and warrants.

In 2008, the big leap in market volatility, combined with the sharp cost of borrowing money from the interbank market and broad-based market falls, hammered the hedge fund sector, causing the worst losses – around 19 per cent – in its history. However, broad measures of stock market performance, such as the MSCI World Index, fared even worse, down by around 40 per cent, so long-only investors suffered bigger losses, on average, than hedge fund clients.