“We definitely believe the price of volatility is low going into the summer and going into a very illiquid period,” said Gulati, who was head of global equity proprietary trading at JPMorgan Chase & Co. before starting Argentiere in 2013 with about $300 million.
Money managers see a Brexit vote as particularly bad for southern Europe because investors will test weak links such as the financial sectors in Portugal, Italy and Spain. The EURO STOXX Banks Index has dropped almost 9 percent this month. Banco Comercial Portugues SA has declined 30 percent, Banco Popolare SC is down almost 13 percent, while UniCredit SpA has lost more than 13 percent.
Stanislas de Caumont, a money manager at billionaire Steven A. Cohen’s investment firm Point72 Asset Management, said Brexit will fuel uncertainty and may trigger a referendum elsewhere in the region.
Bonds will rally and currencies remain “volatile over the course of the summer as politicians and central bankers keep reacting to the outcome,” he said in an e-mail. “I would expect bonds to sell off hard” if the vote is to stay in the EU, he said
Risk Shunned
With managers shunning risk before the vote, the net exposure of hedge funds that take long as well as short bets on equities, the difference between their long and short investments, was the lowest since February at about 31 percent toward the end of last month, according to Philippe Ferreira, head of research at Lyxor Asset Management. A lower number indicates less risk taken by hedge funds.
Debt investors are rushing to hedge their exposure, with the cost to protect against losses in the credit derivatives market surging to the most in more than three months on Thursday as traders bought almost three times the average amount of default insurance.
Investors are also holding the most cash since November 2001, according to a Bank of America Corp. survey this week.
“It’s hard to have conviction in these types of environments, but what people are comfortable in saying is that there’s going to be some volatility and they can find a way to monetize that,” said Kevin Lyons, senior investment manager at Aberdeen Asset Management Inc. that oversees about $11 billion in hedge-fund assets.