August 7, 2015

When even Cargill Inc., the world’s largest grain trader, decides to liquidate its own hedge fund, that’s a sign that commodity speculators are in trouble

Hedge Fund Losses From Commodity Slump Sparking Investor Exodus

by Javier Blas
When
even Cargill Inc., the world’s largest grain trader, decides to
liquidate its own hedge fund, that’s a sign that commodity speculators
are in trouble.

Hedge funds focused on raw materials lost money on
average in the first half, the Newedge Commodity Trading Index shows.
Diminishing investor demand spurred Cargill's Black River Asset
Management unit to shut its commodities fund last month. Others enduring
redemptions include Armajaro Asset Management LLP, which closed one of
its funds, Carlyle Group LP's Vermillion Asset Management and Krom River
Trading AG.

While hedge funds are designed to make money in both
bull and bear markets, managers have a bias toward wagering on rising
prices and that’s left them vulnerable in this year’s slump, said Donald
Steinbrugge, managing partner of Agecroft Partners LLC. The Bloomberg
Commodity Index tumbled 29 percent in the past year and 18 of its 22
components are in a bear market.

“No one wants to catch a falling
knife, and demand for commodity-oriented hedge funds is very low,” said
Steinbrugge, whose company helps funds find investors.


The
amount of money under management by hedge funds specializing in
commodities stands at $24 billion, 15 percent below the peak three years
ago, according to data from Hedge Fund Research Ltd.

The Newedge
index, which tracks funds betting on natural resources, suggests
managers have lost money for clients during much of the past four years.
A dollar invested in the average commodity hedge fund in January 2011,
when values reached a reached a record, had shrunk to 93 cents by the
end of June. Investing in the S&P 500 index would have returned 80
percent, including dividends.


Commodity
profits tumbled in 2012 and 2013, prompting the first wave of closures,
including funds run by Clive Capital LLP and BlueGold Capital
Management LLP.

The exodus marked a shift from the boom times
before the financial crisis, when the Newedge index surged almost
sixfold from 1999 to a peak in June 2008. Since 2010, the gauge fell in
three of the next four years and is down 0.3 percent in 2015.

The
Galena Fund fell 0.8 percent in the first six months of this year,
according to data compiled by Bloomberg. The fund, which had $637
million at the end of June, is the asset management unit of Trafigura
Beheer BV, the second-largest metals trader. Officials at the unit
declined to comment.

The $230 million Singapore-based Merchant
Commodity Fund lost 3.9 percent in the first half, after returning
almost 60 percent last year, a record.

“Investor appetite in commodities isn’t high,” said the fund’s founder, Michael Coleman.


Krom
River, based in Switzerland, lost 2.9 percent in the first half,
according to a letter to investors seen by Bloomberg. Assets under
management stood at $64 million in June, from about $800 million in
2012. Chief Executive Officer Mike Cartier declined to comment.

The
Armajaro Commodities Fund, which managed $450 million, lost 11 percent
in the first half and was scheduled to close at the end of July, a
person familiar with the matter said. The company declined to comment.

The
founders of Vermillion Asset Management, the commodities hedge-fund
firm owned by Carlyle Group, left this year after losses. Assets in
Vermillion’s main fund fell to less than $50 million from a peak of $2
billion, a person with knowledge of the matter said last month.


Hedge fund manager Pierre Andurand. Photographer: Daniel Acker/Bloomberg
Hedge fund manager Pierre Andurand. Photographer: Daniel Acker/Bloomberg
Others
have fared better. Andurand Capital Management, run by Pierre Andurand,
gained 3.5 percent in July, bringing his 2015 gains to 4.8 percent,
according to a person familiar with the matter.

 The fund, which manages about $500 million, delivered a 38 percent return in 2014. The company declined to comment.


“There’s
no money going into commodities,” said Christoph Eibl, chief executive
officer of Tiberius Asset Management AG, which has $1 billion in
commodity investments.





read the article online here: Hedge Fund Losses From Commodity Slump Sparking Investor Exodus - Bloomberg Business




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