$80 Billion Hedge Fund Braces for Bear Market

Elliott Investment Management warned in its latest investor letter that investors could abruptly move from fear of missing out to what the firm calls the "fear of getting obliterated" (FOGO), according to a review of the letter by The Wall Street Journal. The $80 billion hedge fund, led by Paul Singer and Jonathan Pollock, compared today's debt-fueled, tech-heavy markets to the Roaring '20s that preceded the Great Depression. "At present, virtually every alarm bell warning of a substantial bear market ahead is ringing," the letter said.

The firm cited a range of risks, including widening U.S. budget deficits, persistent inflation, private-credit portfolios and AI hype. The latter includes circular investments between technology firms and infrastructure makers, as well as debt-financed capital spending. Elliott also criticized zero-day options and meme-stock betting, which it described as more like gambling than investing. The letter warned that "it might take disruption in only one or two of them to shift this momentum into reverse," describing a risk of "a cascading, self-reinforcing unwind of this bull market."

Elliott's own performance reflects this defensive posture. The fund was flat in the third quarter and up a little under 2% through September, while the S&P 500 returned nearly 13% over the same period. Distressed debt and hedges tied to gold, currencies, stocks and interest rates lost money, while commodities, arbitrage and credit hedges were profitable. The letter noted that Elliott's five-decade history includes fallow periods that have historically been accompanied by market turbulence and followed by rare opportunities, adding: "Our goal is to be well positioned—protected on the downside, and with capital to deploy into the bargains—when the tide turns again." The firm identified opportunities in healthcare activism, producing energy properties and, eventually, forced sellers in dislocated credit markets.

Elliott's 13F filing dated August 14 shows a significant lean toward hard assets. Triple Flag Precious Metals Corp. (TFPM) was the largest holding at $3.99 billion, or 18% of the total, followed by Phillips 66 (PSX) at $3.25 billion, Suncor Energy Inc. (SU) at $1.58 billion and Hewlett Packard Enterprise Co. (HPE) at $1.46 billion. Southwest Airlines Co. (LUV), where Elliott won a board overhaul in 2024, remains a $1.25 billion position, while PepsiCo Inc. (PEP) and Synopsys Inc. (SNPS) are small stakes at $173 million and $101 million. Derivatives exposure is largely for downside protection, including puts on Invesco QQQ Trust (QQQ) with $2.56 billion in notional value and puts on the iShares Expanded Tech-Software ETF (IGV) adding $1.43 billion. Additional puts were reported on the Industrial, Consumer Discretionary and Consumer Staples Select Sector SPDRs (XLI, XLY, XLP).