Analysis: Commodity hedge funds find money more scarce, pedigree pays

Mon Feb 4, 2013 5:46pm EST
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By Barani Krishnan

NEW YORK (Reuters) - Pierre Andurand, who managed $2 billion at his BlueGold oil hedge fund before it folded last year under heavy losses, is headlining a host of one-time commodity stars looking to make a comeback in a less merciful market.

Andurand began trading on Friday at a new $200 million hedge fund that he plans to expand to $500 million by the end of the first quarter and $1 billion eventually. But the 36-year-old Frenchman who tripled his investors' money in his first year at BlueGold will have to face more wary investors this time.

Some of the best commodity fund managers have been repeatedly caught on the wrong foot over the past two years, going long when markets tumbled and short when prices spiked.

Even though the outlook for the U.S. economy and euro zone is brighter this year, and oil prices are rebounding, many investors have pared back their investments in commodity funds after dull returns and spectacular losses like Andurand's 35 percent drop in 2011.

That hasn't stopped some high-profile commodity traders from trying to launch their own funds for the first time or attempt a comeback. Their logic is that money will always find the best talent to run it, even if that talent has had some rotten luck recently. Investment banks, once home to the biggest-earning traders, have also become less desirable places to work, with pay and bonuses falling each year.

In March last year, Morgan Stanley (MS.N: Quote) veteran Neal Shear and ex-UBS UBSN.VX commodities head Jean Bourlot started Higgs Capital Management in London. In September, Paul Crone, who was chief trader at Touradji Capital Management, started Citrine Capital Management, a metals hedge fund in New York.

In December, Tony Hall and Arno Pilz formed Hall Commodities after leaving London's Duet Commodities Fund with a string of losses. And last month, Andrew McMillan, who oversaw energy investing for Tudor Investment Corp from Singapore, left to set up his own shop with some former colleagues.

Andurand began his career at Goldman Sachs (GS.N: Quote), Wall Street's No. 1 bank for commodities, and went on to Bank of America (BAC.N: Quote) and Swiss oil merchant Vitol VITOLV.UL before forming BlueGold in 2008. He had wowed BlueGold investors with a 200 percent gain in his first year, and continued making them happy for another two years before his fortunes changed.   Continued...