World's Largest Commodity Hedge Fund And Andrew Hall Taken To Cleaners On Last Week's Energy Plunge

Tyler Durden's picture

And once again we get a reminder why the word "hedge" fund is such a misnomer. The FT reports the Clive Capital, the "world's largest commodity hedge fund" as defined by the FT (although we are more than confident various other and much largest "energy-heavy" funds would be much more appropriate for this moniker) lost $400 million out of its (paltry) $5 billion in total AUM during last week's coordinated energy take down, initiated by the forced margin intervention in precious metals. Clive "is the biggest of several big hedge funds believed to be reeling after the unexpected sell-off hit markets late last week." Clive is not alone: "Others, including Astenbeck Capital, the Phibro-owned fund run by Andrew Hall, are thought to have taken double-digit percentage point losses to their portfolios, according to investors." The FT's take: "The scale of the losses demonstrates that even the savviest investors in commodities were wrongfooted by the correction, one of the sharpest one-day falls on record." Our is slightly different: when a trade has enough momentum, and has been working long enough, even the quote unquote "savviest investors" become a momo chasing herd, with nobody hedging, and a massive drop in prices always likely to be the deathknell for some previously vaunted investor, whose only claim to fame was being lucky enough once to be at the right time and the right place, and to put a huge levered bet that worked out. And praying that he or she can recreate those conditions.

More from the FT:

In a letter sent to investors on Friday and seen by the Financial Times, Clive said it was down 8.9 per cent on the week after what it called “extraordinary” price movements on Thursday. Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”.

“The move in Brent represented about a 5 standard deviation move, while WTI was a 4 standard deviation move,” Clive said in its letter. A five standard deviation daily move is a exceptionally rare event.

“Economic data was soft early in the week though micro news for oil continued to be bullish. Indeed there was news out earlier in the week of further supply disruptions in Yemen and a substantial technical supply outage in the UAE,” the fund said.

While several fund managers had been slowly positioning themselves for a correction, the speed and scale of the event caught most – including Clive – off-guard. At its low of $105.15 a barrel on Friday, benchmark Brent crude oil had dropped more than $16 in two days.

Thursday’s sell-off was started by retail and non-traditional investors taking profits – a move which triggered automatic selling from quantitative funds and precipitated a rout. The correction means Clive is now slightly down on the year, after strong performance over the first four months to April.

And now that the technical blow off has been eliminated, fundamentals - as in scarce supply and relentless demand - can once again return;

Most managers remain bullish, however, and expect commodity prices to continue to rise. “Physical markets are quite strong,” said Clive in its letter. “We remain positioned in a number of markets.”

Commodity hedge funds are used to volatile portfolio moves. In spite of similar historical setbacks, Clive has a record of returning, on average, 27 per cent on investors’ capital a year.

The fund manager was set up in 2007 by Chris Levett, a former trader at Moore Capital, the global-macro hedge fund run by Louis Bacon.

A 27% return with a negative Sharpe ratio. Sounds pretty damn swell. Luckily, for Clive, it was on the border of TBTF. Many other, smaller energy funds were not quite as lucky when the barrage of margin calls flooded their back offices on Wednesday through Friday. We are pretty sure we will learn just who they were over the next 3 days.

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bob_dabolina's picture

Well he didn't eat shit like the guys running Amaranth (Hall was on the other side of that bollocks of a trade)

I think this guy made a billion dollars for Enron though my history of that fiasco has fogged over time.

mynhair's picture

You could use a cleaning, ya know?  PHEW!

Oracle of Kypseli's picture

These are the guys that Ben wants to punish most. Most stock funds are cooperating with the FED and playing roulette with the money of the unsuspecting 401k owners

If not, that's an example of what they may do to you.

topcallingtroll's picture

Very misnamed.

Unhedged funds is more like it.

knukles's picture

"Savy", "hedge" and "taken to the cleaners".


Thomas's picture

BTW-What's with all the pathetic math? Five-standard deviation move? Time to get new models if anybody believes that would be observed.

Yen Cross's picture

If I MAY oblige. What are the margin levels on this FUND!

Mentaliusanything's picture

I hope is was their money? - but of course it is. I don't remember why we need these suits that make nothing, produce nothing and are nothing. Parisites are always deadly to the host.

knukles's picture

In today's financial kleptocracy, all money is their money.

Yen Cross's picture

Sensational Bantar. Those wanabe Thespians!

Atomizer's picture

I'll bet he's now reading Harvey & Turd. Mumbling under his breath, FUBM.

Lord Welligton's picture

Oh deary me.

Did the young ones just get taken out.

What a shame.

Still life is long.

They will grow up.

eigenvalue's picture

Has silver stablised? Or the correction is not over yet? I'm confused.

Creed's picture

what is Martin Armstrongs track record on calling the precious metals prices?


by geminiRX
on Sun, 05/08/2011 - 22:07


Hopefully silver spikes then makes a low near mid June,

Gavrikon's picture

It does appear to be attempting it this morning.

mynhair's picture

Harcourt Fenton Mudd III runs the best fund.

Ident 7777 economy's picture

+1 (Original Star Trek character ref for those not following)

Billy Shears's picture

Does this call for a: Normalcy bias, bitchezzz?

Zero Govt's picture

AUM for those who don't know means 'Assets Under Management'

or in this case is now 'AUW' ..Assets Under Water!

TD regards your comment, "..savviest investors become a momo chasing herd.." it's maybe a bit harsh considering the disgusting sudden (multi-shock!!!!) rule changing CME margin fiasco. I've heard alot of comments regards this correction casually say it's "removing weak hands" from some 'respectable' investors i tune into. That is an insidious statement to make

These were perfectly sound investors investing on an established margin basis who were literally machine gunned by their business floor being shot away from under them in 8 scandalous days. The CME are an utter disgrace of an exchange and i truly hope all who were shot to pieces join and sue the shambolic Crimex into the ground 

It is Hedgies job to chase the herd BTW, that's how you make money. Although one US Hedgy on CNBC this week when asked was he 'in' or pulling money off the table replied he was 85% invested as that was his "rules", to be 85% invested at all times

That's fuking scary to have such a stupid (inflexible) rule! I'd withdraw money from any fund that forces a ratio and ties your hand particuarly in bear market times

earnulf's picture

I have to agree with ZG, this entire takedown (let's call it what it was) was predicated on a change in how the game is played.   Nothing fundamental changed, the refs just decided to make up a new rule and threw a flag.   Of course the shorts, probably knew beforehand and really cleaned house while the longs had to take it up the you know what and wait for the screaming to die down.   The shorts know they don't have the best team on the field and the longs are going to eventually kick their a-- up and down the field, so they get the refs to throw them a flag or two to make it look interesting and so they can breath.


Nothing like a silver team to take one's breath away, especially when they are so physical

Zero Govt's picture

there are already a number of experts saying there was zero commercial justification for CME's orgy of vandalism..

...and here we are with powerful reasons (bankruptcies, people losing their jobs, money, some lifetime savings) to counter such foot-loose rule/game changing 

CME shot the floor from under the markets feet like some drunken hot-head Chicago gangster ...they should have been more responsible and professional in their rule changes not to increase price volatility and realised the vandalism and carnage they would create with 5 margins in 8 days

at best this was a shambles of business practice at worst it was as you say a 'take down' (deliberate)

watch CME's current advert on CNBC about "helping farmers managing risk" about these Hedgies that have lost jobs, their investors that have lost money and the private investors who've lost savings???

ejhickey's picture

Ever see the ad for Lind Waldock that says investing in commodities is better than investing in the stock market because it just involves supply and demand with no counter party risk?   Guess they forgot about the CME, CFTC and the Fed.

seek's picture

Given that a competing exchange is starting to ramp up, I wonder how much of this was "getting while the getting is good." I.E. the window of opportunity to hose people for the bank's benefit may be coming to a close. Akin the Hunt fiasco, one has to wonder where the stakes were in this game.

The next step will probably be something that makes it harder to use an alternate exchange, which amounts to veiled capital controls.

Billy Shears's picture

I mean really, can't it be argued that the world is on the cusp of the greatest deflationary event/spiral in all economic history? And that, as we all know, is precisely the reason for the Fed and all the other central banks world-wide printing avoid aforementioned collapse? And, in the absence of said printing, couldn't all commodity prices, especially oil, go meaningfully lower in price...if the fed ever stops printing or just fail in it's efforts to re-inflate the greatest bubble of all time.

Yen Cross's picture

Well done from a Yank! FIVE paragraphs above solidify our approach! KEEP up the FINE WORK  Tyler.

rocker's picture

+10  "If" only has value after we have Zimbabwe dollars and if our economy looks like Japan. Whoops....did I say "if".

  My Bad.  We are Japan now.

Goldenhands57's picture

Exactly! And the crux of this is printing MUST end at some point. It becomes pointless to continue. Not to have any soft spot for the guy..but Bernankster has to be totally aware this has a very bad ending no matter which way he goes. So IF is not IF but WHEN!!!! WHEN TSHTF...because it is not even a debate now, hopefully there are enough aware "non fools" deep enough in physical holdings to reconstruct after the carnage. Those with actual physical wealth backing our offers with PM for value investments will be the one's who MAY be able to reconstruct this Republic to something less than but closer to where we are heading now. We must do our part when that time comes. By encouraging all I know to purchase and hold on to at least some Gold and Silver coin to protect themselves...not simply trust this will "all work out"; I hope to help the future younger folks not fall into destitution. Those of you that are aware, it would be well to speak openly now to the younger generations that it is prudent to hold this defense. Even junk 90%  silver at whatever few they may afford is a good start. 2 less Latte's a more 64 Kennedy..ect    

Spitzer's picture

Did the Thai Baht rise in 1997 ?

Get your head out of your deflationist ass.

(The baht went from 25 to 58 when the printing STOPPED.)

Hephasteus's picture

That's because the people store value in dollars and gold.

All it take is a few more people in US diving into gold and silver to explode our currency.

People don't want to do it because they prefer the psycho be out killing people in far off lands. But what they don't understand is people in far off lands are going to mess up the gold and silver markets here anyway. And after the psycho is done hurting everybody it will detach into IMF and hurt everyone anyway.

Spitzer's picture

That's because the people store value in dollars and gold.


The USD in 1997 is not the same USD now.

All it take is a few more people in US diving into gold and silver to explode our currency.

and  the Euro or the Franc. People will slowly find out that the myth that even Austrians and keynesians agree on, is bullshit. That myth is that the US dollar is the least worst fiat in the world.


AUD's picture

The USD in 1997 is not the same USD now

Too true, the USD gold price slowly fell all throughout the Asian Financial Crisis. The UST market was 'rock solid' then, even if built on shakey foundations. The same cannot be said now & since 2008 it has become exponentially worse.

That doesn't stop the odd speculation in government credit however, especially when the sharks sense central bank weakness. Has anyone seen a photo of Masaki 'Easy' Shirakawa? That guy has chump written all over him.

Hephasteus's picture

Which is why thailand is the most expensive spot on the planet for gold. Because they USED to hold dollars and gold. Then when holding dollars got them hungry they dumped them.

ZeroPower's picture

Did seriously just bring up the Asian currency crisis by brining up the "rise" of the Baht?

Spitzer's picture

I was just showing that using deflatinist logic, the Thai baht should have risen in 1997 but it fell.


bid the soldiers shoot's picture

I love your recipe for the economy. I know a variation of it that'll knock your socks off.

Just add a couple of spoonfuls of 'peak oil.' Yum yum.

DrunkenMonkey's picture

A deflationary spiral coupled with fewer (and harder to extract) natural resources ?

I can see that.

Hephasteus's picture

If the bastard wasn't liquidated he'll be up 5 frikkin percent in a couple weeks.

buzzsaw99's picture

They got their 2 and 20, it was great while it lasted.

firstdivision's picture

That's the beauty.  If they make the fund money they get extra paid, if not...well they still get paid quite well. 

buzzsaw99's picture

The beauty is that they get 20% of the paper profits in a good year but share none of the losses in the bad. The 2, as you say, is theirs no matter what.

Keith Piccirillo's picture

Maybe their loss is GlenCore's gain?

tiger7905's picture

Some interesting comments by Don Coxe on how the Glencore underwriting affected commodities.

Billy Shears's picture

Liquidy trap? Nothing grows to the sky. Hedge funds go with the momentum but really is only just a shadow your chasing, I wouldn't pay it any mind...hey Mr. Tamborine man play a song for me...when the music stops and all these commodity prices are kited sky high who is really going to pay for all this? No, the conventional wisdom is inflation, sure. And maybe the historical records confirm this but the world economy is already dead, it's just presently on life support. Prices will come crashing down again and further.

TooBearish's picture

21st century Hedge Fund = massively leveraged beta

Billy Shears's picture

The thai baht going to 58 would be good for the importers in Thailand but the exporters would suffer.