(Bloomberg) -- The lack of market volatility -- or swings in the prices of securities -- has claimed one of its most high-profile victims.

Argentiere Capital is returning capital to investors from its flagship $940 million hedge fund after years of unsuccessful wagers on rising market turmoil, according to a person with knowledge of the matter.

Founded by JPMorgan Chase & Co.’s former top trader Deepak Gulati, the Zug, Switzerland-based investment firm will continue to manage about $250 million in other strategies, the person said, asking not to be identified because the information is confidential. The Argentiere Fund rose 2.5 percent in 2018 after posting losses in the prior two years, according to a letter to investors seen by Bloomberg News.

Gulati didn’t immediately respond to an email and call seeking comment.

The decision follows a troubled time for hedge funds counting on swings in prices of securities as they found themselves pitted against bigger bets that market calm would prevail. On average, hedge funds betting on volatility lost 6.1 percent in the first two months of this year, while those wagering on less turmoil made 2.8 percent, according to Eurekahedge’s Cboe Volatility benchmarks.

The $3 trillion-hedge fund industry is shrinking with veterans who survived several business cycles throwing in the towel. Money-making opportunities have dwindled with muted volatility, while regulatory constraints make it harder for new blood to come in. A slew of hedge funds including John Labanowski’s Brenham Capital Management and Peter Brewer’s Cumulus shuttered last year, leading to closures outnumbering launches for the third consecutive year, according to data provider Eurekahedge.

Generating profits for clients that beat benchmark returns is also more complicated with the traditional fee structure at hedge funds, according to Steve Eisman, whose famous bets against the U.S. housing market were chronicled in Michael Lewis’s “The Big Short.”

“It is hard to make alpha when you are charging 2-and-20” in fees, the Neuberger Berman Group money manager said in a Bloomberg Television interview Thursday. “As we get to a more normalized rate world, it will be easier, but that is a long road."

Declining Assets

Argentiere, named after a skiing village in the French Alps, was started by Gulati and a team of former colleagues from JPMorgan in 2013 with $300 million. The manager had previously overseen bets made on global stocks by the U.S. bank using its own money. His hedge fund managed as much as $2.4 billion by April 2016, when Gulati stopped taking fresh capital. Assets have since declined as some investors pulled out and performance waned.

Gulati told investors at the end of last year that markets had finally seen “the end of the ultra-low volatility regime” and a strategy based on swings in prices “appears to be a very attractive asset class to own.” Instead, the Cboe Volatility Index, or VIX, has eased away from its December high. It reached a five-month low on Wednesday as the S&P 500 Index closed above 2,810 for the first time since early November.

--With assistance from Luke Kawa.

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, ;Shelley Robinson at ssmith118@bloomberg.net, Chitra Somayaji, Patrick Henry

©2019 Bloomberg L.P.

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