(Updates with Black River performance in 23rd paragraph.)
Jan. 22 (Bloomberg) -- Hedge funds lost money for commodity investors for a second straight year as managers from the Galena Metals Fund to Clive Capital LLP trailed benchmark indexes of raw materials.
The Newedge Commodity Trading index of 56 hedge funds fell 2.6 percent last year, while the Standard & Poor’s GSCI Total Return Index of energy, metals and agricultural products added 0.1 percent. Galena retreated 8.9 percent, the first annual loss since its inception in 2004, according to a letter to investors obtained by Bloomberg News. The performance was confirmed by the company. Clive, Europe’s biggest commodity hedge fund, declined 8.8 percent after a 9.9 percent slide in 2011.
Commodity funds were whipsawed by markets that fell as China’s economic growth faltered, then recovered as European officials calmed the sovereign debt crisis and fluctuated as U.S. President Barack Obama and his Republican opponents battled over the budget deficit. While the GSCI index slid more than 8 percent in the first five months of the year before rebounding 12 percent in the third quarter, it ended the year little changed.
“A lot of funds were caught on the wrong foot by the change in macro fundamentals,” Fraser McKenzie, head of research at 47degrees North Capital Management Ltd., a $250 million fund that invests in other hedge funds, said in a Jan. 15 phone interview from Pfaeffikon, Switzerland. “We have light exposure to commodities funds at the moment and it doesn’t look like it’s going to turn around any time soon.”
Galena’s assets under management declined 17 percent from April through December to $675 million, based on a comparison of data in letters sent to investors for those months. It lost 3.5 percent in August and 3.4 percent in both September and December, one of the letters showed. Galena may replace redemptions with money from existing investors, the company said by e-mail.
The risk-on-risk-off “mentality” hurt Galena’s positions last year, Duncan Letchford, the firm’s 40-year-old chief investment officer in London, said in the most recent letter. “We remain positive about future potential in commodity markets particularly as a result of lessening political interference and hopefully more normalized monetary policy from central banks.”
Letchford joined the fund in 2005 after positions at HSBC Holdings Plc and NM Rothschild & Sons Ltd. and has traded metals for 22 years, according to Galena’s website. The fund returned 11 percent in both 2011 and 2010, 13 percent in 2009 and 22 percent in 2008.
Clive’s assets tumbled by $1.7 billion last year to $1.95 billion, two people with knowledge of the performance said this month. Both declined to be identified because the London-based fund is private.
Hedge funds typically receive 2 percent of assets and 20 percent of profits in fees from the high-net-worth individuals and other investors who use them. That ensures that managers get paid even if they lose money. Clive charges clients 2.5 percent of assets and 25 percent of profits, according to an investor letter. Elizabeth Holstein, an investor relations official at Clive, didn’t respond to an e-mail seeking comment.
Clive was founded in 2007 by 42-year-old Chris Levett, an antiques and modern art collector who opened the Musée d’Art Classique de Mougins in the south of France in 2011 and became a director of London’s Vigo gallery in September last year.
$60.8 Million Wage
Clive’s highest-paid partner received $60.8 million for the 12 months ended in February of last year, according to the hedge fund’s most recent financial report filed with the U.K.’s Companies House. It didn’t identify the employee.
The last time commodity hedge funds beat the GSCI index was in 2010. That year, they made 10 percent, compared with a 9 percent return on the gauge of 24 raw materials. In 2011, funds lost 3.8 percent, according to Newedge, as the GSCI fell 1.2 percent.
Hedge funds of all types advanced 6.7 percent in 2012, rebounding from a 5.1 percent loss a year earlier, according to the Bloomberg Global Aggregate Hedge Fund index. The S&P 500 index of U.S. shares rose 13 percent and the Bank of America Merrill Lynch Global Non-Sovereign Index of bonds returned 7.3 percent.
Of the 42 commodity funds that had reported performance to Newedge by Jan. 16, 22 declined and 20 gained.
Among the better performers last year was Mastic Investment Advisory AG, managed by Zug, Switzerland-based Chief Investment Officer Kieran McKenna, 38, who has also traded energy at Citadel LLC and is a former global head of oil trading at Credit Suisse Group AG. The fund returned 21 percent in its first full year by investing in crude and oil products, according to two people with knowledge of the matter who asked not to be identified because the information is private. McKenna declined to comment when reached by phone.
Frere Hall Capital Management, founded by Taimur Hassan, who also worked at Citadel, returned 8.9 percent through December after opening in July, it said in a letter to investors. Hassan left Goldman Sachs Group Inc. in December 2011, little more than a year after the firm named him a managing director at the age of 28. The $400 million fund has its biggest positions in natural gas, crude and distillate markets. Chief operating officer Damian Dwan declined to comment when contacted by phone on Jan. 15.
Wheat futures increased 19 percent in 2012, the best performer on the S&P’s GSCI gauge of 24 commodities, after dry weather hurt crops in the U.S., Australia and Russia, the biggest exporters. Soybeans climbed 17 percent and corn rose 8 percent.
Global Ag LLC, a $422 million investor in grains and oilseeds that started in 2008, returned 35 percent last year, according to its website. Singapore-based Matcham Capital Investment Pte’s agriculture-focused hedge fund returned almost 18 percent in 2012 after a 13 percent advance from May through December 2011, according to a report to investors obtained by Bloomberg News. Andrew Lenton, founder and chief investment officer, declined to comment.
The containment of the euro-region debt crisis and the prospect of an announcement by the Federal Reserve in September that it would expand its asset-purchase program, known as quantitative easing, fueled optimism about world economic growth. U.S. crude gained 10 percent in August, the biggest advance in 10 months, before retreating 4.4 percent in September and 6.5 percent in October.
“The third quarter saw a rally in oil spurred by QE3, only for it to run out of steam in September,” Axel Belorde, an analyst at Liongate Capital, said by e-mail.
Two of the largest commodity hedge funds recovered last year. The $789 million Brevan Howard Commodities Strategies Fund, returned 5.9 percent in 2012 after a 2.6 percent loss the previous year, according to an investor letter. The fund, which started in March 2010, increased its assets by more than $200 million from August to November. Max Hilton, a company spokesman in London, didn’t respond to e-mail and phone messages seeking comment. The S&P GSCI Total Return index has advanced 2.4 percent this year.
The Armajaro Commodities Fund gained 1.7 percent. It posted a 7.1 percent decline the previous year, the first loss since the $1 billion fund opened in 2005, two people with knowledge of the returns said. The fund didn’t respond to an e-mail seeking comment.
Black River Asset Management LLC’s commodities fund, which began trading in 2006, returned 8.8 percent in 2012 after declining 6.7 percent a year earlier, according to a letter to investors obtained by Bloomberg News.
RK Capital Management LLP’s $240-million Red Kite Metals Fund returned 12 percent in 2012 after gaining 29 percent a year earlier, the company said in an e-mailed response to questions. The $360-million Red Kite Compass fund rose 11 percent after a 68 percent increase in 2011, said the London-based money manager, which oversees $3 billion in assets.
The $640 million Krom River Commodity Fund slid 4.9 percent, adding to a 3.9 percent loss in 2011. The Baar, Switzerland-based fund, managed by Chris Brodie, held $730 million of assets in August.
“Political decisions on the economy had large effect on our markets while commodities-specific fundamentals took back seat apart from grains,” Itay Simkin, chief executive officer of Krom River Trading AG, said yesterday by e-mail from Baar, Switzerland.
The Merchant Commodity Fund, which lost about two-thirds of its capital in the year through January 2012, declined 7.6 percent following a 30 percent slump the previous year, two people with knowledge of the returns said. It had assets of $210 million at the end of December, down from $550 million in January. Michael Coleman, the fund’s chief risk officer in Singapore, declined to comment.
“We expect to see a less complacent attitude from investors toward some of these larger funds that have underperformed,” said Gabriel Garcin, a money manager in Paris at Europanel Research and Alternative Asset Management, a $550 million fund of hedge funds.
--Editors: Lars Paulsson, Philip Revzin