The abrupt failure of the London-based hedge fund Captain Condor, which managed $3.8 billion in assets, has triggered a $1.2 billion loss and raised alarms about risk oversight in leveraged derivatives strategies. The firm’s collapse underscores vulnerabilities in complex financial instruments and the dangers of unchecked leverage.
- Captain Condor collapsed on January 9, 2026, after a $1.2 billion loss in its derivatives portfolio
- Peak assets under management reached $3.8 billion in late 2025
- The fund used 8.3x leverage across equity index options, primarily in DAX and CAC 40
- Two clearinghouses reported combined exposure of $410 million
- ESMA is reviewing leverage regulations for non-bank financial intermediaries
- European equity futures dropped 1.4% in response to the event
Captain Condor, a London-based investment vehicle operating since 2018, ceased trading operations on January 9, 2026, after its proprietary derivatives portfolio suffered a cascade of margin calls. The firm had taken concentrated long positions in European equity index options, backed by 8.3x leverage, which proved catastrophic when volatility spiked following unexpected ECB policy shifts. The fund’s liquidation triggered a $1.2 billion mark-to-market loss across its counterparties, including major European clearinghouses and prime brokers. The collapse marks one of the largest hedge fund failures in the past decade. Captain Condor’s peak assets under management reached $3.8 billion in late 2025, drawing significant inflows from institutional investors seeking yield in a low-rate environment. However, its risk management framework failed to account for tail events, particularly in the German DAX and French CAC 40 options markets. Internal risk reports from Q3 2025 revealed that stress tests assumed a maximum daily volatility of 1.8%, far below the 5.3% spike observed during the final week of trading. The fallout extended beyond the fund’s immediate investors. Two clearing members—Talisman Clearing and EuroClear Derivatives—reported combined exposure of $410 million, prompting emergency capital calls. Regulators in the UK and Germany launched investigations into the firm’s trading practices and the adequacy of collateral requirements. Market participants now face increased scrutiny, with the European Securities and Markets Authority (ESMA) signaling potential revisions to leverage limits for non-bank financial intermediaries. The incident has prompted a reevaluation of risk controls across asset management firms. Firms like BlackRock and Vanguard have begun tightening exposure thresholds for derivatives-heavy strategies, while some pension funds are reducing allocations to hedge funds with less than $500 million in net assets. The broader market reacted with a 1.4% drop in European equity futures on January 10, reflecting growing anxiety over systemic exposure.