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"I’m The First To Say: I Can’t Do It" - The Energy Junk-Bond Implosion Just Claimed Its First Victim

Tyler Durden's picture




 

The universe of entities who have blown up in the past year trading oil and commodities is getting increasingly more crowded and includes among them such former luminaries as one-time oil trading god (if mostly in the eyes of Citigroup) Andy Hall. However, until now there not been any prominent casualties among the group of indirect investors in the energy space, those investing in the stocks or debt of energy names, and especially those most at risk from the oil price collapse: junk bond investors.

That changed today when as WSJ reported earlier, Kamunting Street, which managed about $1 billion at its peak, announced it was returning capital to investors, as a result of plunging oil prices and wrong way junk bond bets tied to hard-hit energy companies which had gone sour over the past nine months.

Allan Teh, Kamunting Street's founder and a former Citigroup trading star, said "I’m the first to say: I can’t do it. I just don’t think in this environment I can have a portfolio that mirrors what was done in the past.

And with that he joins another list of illustrious hedge fund managers who applied such Old Normal concepts as fundamentals, logic and reason to a broken and manipulated "market", which due to the Federal Reserve's central planning, has become merely a policy tool designed to "restore confidence" and which does precisely the opposite with every passing day.

More from the WSJ:

Kamunting, named after Mr. Teh’s childhood street in Malaysia, is far from alone in its struggles to navigate the unpredictable market moves of recent months. Few hedge funds were able to capitalize on an unexpected oil bust that has sent prices down 50% since last summer, and most haven’t come close to matching the largely giddy ride for U.S. stocks and government bonds.

 

Mr. Teh, 49 years old, had a profitable decadelong run with Kamunting, which he founded in 2004 after serving as chief investment officer of Citigroup’s now-defunct Tribeca Global Investments hedge-fund unit. A convertible bond specialist for much of his career, Mr. Teh grew Kamunting to manage about $1 billion at the end of 2007. The firm lost money during the crisis, and then roared back to an 88% gain in 2009 by buying up fixed-income assets that rebounded along with the financial recovery.

 

More recently, however, his strategy of placing offsetting bets to keep from moving lock step with the broader market turned into a drag. Kamunting lost money last year on positions designed to protect against losses in its overall portfolio, including wagers against U.S. Treasurys and stocks.

 

That came as the riskier part of the noninvestment grade, or junk-bond, universe crumbled late last year on the heels of a sharp decline in oil-even for borrowers with few obvious connections to energy.

Most surprising is that K-Street did not have any major blow ups, at least not on paper: "Kamunting was up 7% at midyear 2014, but skidded in the back half during what Mr. Teh described as a “bad swing,” and ended the year down 4%. It was down an additional 2% in 2015." Unless of course, the vast majority of assets were simply market-to-myth in hopes of an imminent oil price rebound which never came, and the result was the fund's shuttering and total liquidation at firesale prices. 

Kamunting’s total assets dropped to less than $300 million recently, and when its largest outside investor asked for its cash back at the start of the year, Mr. Teh said he was bound to sell some positions at inopportune prices to pay back the request. He soon decided he would be better off managing only his own money, which represented the lion’s share of what was left in the fund.

His words of parting were taken directly from Steve Cohen's SAC Capital farewell letter:

“I feel pretty proud of what I’ve done,” he said, noting that he had made his investors more than $1 billion over the firm’s lifetime. He added that he felt free of the pressure to trade amid low volatility to satisfy jittery potential backers who were worried about avoiding even the remote possibility of short-term losses. “I can enjoy things more now that I don’t have investor issues to deal with,” he said.

Well, at least he didn't have a criminal investigation hanging over his head that would cost him at least two Kandinskis and three Picassos to put to rest. He will, however, continue running his own money as a family office.

And now that the spigot has been opened, expect to see many more junk-bond hedge funds throw in the towel on what continues to be the biggest oil rout since Lehman.

 

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Thu, 04/09/2015 - 15:52 | 5976216 KnuckleDragger-X
KnuckleDragger-X's picture

There's a lot of junk floating out there bought by people who 'knew' they had a sure thing. I expect to see a lot more of this as the optimists discover reality by being crushed by it.....

Thu, 04/09/2015 - 15:56 | 5976225 SMG
SMG's picture

I read somewhere that the fracking debt is bigger than the mortgage debt was during the last crash.

As it seems like oil prices are going to stay low for a while, I wonder when this all blows up? 

Things like this indicate it's soon.  Maybe by the summer?

Thu, 04/09/2015 - 16:01 | 5976244 NoDebt
NoDebt's picture

Poor guy.  Loses his clients, loses his business and is now penniless.  I feel sorry for him.

Wait, what?  He's not broke?  You mean he still kept the $158MM he earned in 2-and-20 fees over the years?

Nice crocodile tears, dude.  Well played.

 

Thu, 04/09/2015 - 16:07 | 5976261 williambanzai7
williambanzai7's picture

Apparently he reached his high oil mark...

Thu, 04/09/2015 - 17:31 | 5976333 aVileRat
aVileRat's picture

Closer to the truth than you think WB7

.

A quick bigdough glance shows he was long convert debt, many of which saw a 80% haircut, a few of which had no default protection and his hedge was to short illiquid stocks + front curve yield steepeners. If Kaumie's BigDough is correct then his skew was heavy to protecting against systemic risk which was the 'old normal' in 03-09 but very little protection to front-end moves in TI in '11-15.

Thu, 04/09/2015 - 23:02 | 5977440 blowing winter
blowing winter's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

Thu, 04/09/2015 - 15:56 | 5976226 Miss Expectations
Miss Expectations's picture

Famous last word: Lehman

Thu, 04/09/2015 - 15:57 | 5976229 i_call_you_my_base
i_call_you_my_base's picture

I'm surprised it's taken this long.

Thu, 04/09/2015 - 15:57 | 5976230 buzzsaw99
buzzsaw99's picture

He soon decided he would be better off managing only his own money, which represented the lion’s share of what was left in the fund...

funny how that works.

Thu, 04/09/2015 - 16:35 | 5976369 disabledvet
disabledvet's picture

Its the soaring dollar these fucking scum can't handle...not the collapse in commodity prices.

 

Can't wait to see a trillion dollar hole blown in Goldman's trading "budget."

 

That'll wake these fuckers up...right good, too.

Thu, 04/09/2015 - 15:58 | 5976231 ThroxxOfVron
ThroxxOfVron's picture

He's sold the crap off and got rid of his nagging 2/20 bag-holders and walked with the cream.

He's left holding a bag of impaired assets after giving his clients their money back to avoid being sued/visited in his garage..

"Kamunting’s total assets dropped to less than $300 million recently, and when its largest outside investor asked for its cash back at the start of the year, Mr. Teh said he was bound to sell some positions at inopportune prices to pay back the request. He soon decided he would be better off managing only his own money, which represented the lion’s share of what was left in the fund. "

Thu, 04/09/2015 - 16:00 | 5976237 Comte d'herblay
Comte d'herblay's picture

A billion dollars?

In Texas, that's a 'dime' bet.

Thu, 04/09/2015 - 16:11 | 5976267 williambanzai7
williambanzai7's picture

A billion dollars buys you half a point in the next social media miracle IPO: iScrewU

Thu, 04/09/2015 - 16:05 | 5976255 lasvegaspersona
lasvegaspersona's picture

???Everything Is Awesome...Living Our Dream!!!!?????

Thu, 04/09/2015 - 16:06 | 5976258 ekm1
ekm1's picture

I'm going revise my oil price call to unwind from as low as $20 to as low as $10 for this year. I am ultra short

 

I'm also short barclays since I think it is the sacrificial lamb to be lehmanized for the planned out lehmanization of financial system this year

Thu, 04/09/2015 - 16:13 | 5976277 WillyGroper
WillyGroper's picture

you do mean global, right?

Thu, 04/09/2015 - 16:14 | 5976284 Dubaibanker
Dubaibanker's picture

I would short Standard Chartered instead, not Barclays yet. 

For the strangest reason, not even at the peak of the crisis as many executives (rats) jumped ship in any bank that I can recall.

6 top executives have been forced to quit in the last 6 weeks at SCB.

I smell something bad is coming....in the months ahead at SCB. Would it be revocation of licence or massive fine or something else....

http://www.thenational.ae/business/banking/uae-chief-becomes-latest-depa...

Thu, 04/09/2015 - 16:37 | 5976373 disabledvet
disabledvet's picture

I agree with this.

Thu, 04/09/2015 - 16:56 | 5976426 ReactionToClose...
ReactionToClosedMinds's picture

isn't it (SCB internal turmoil) really fall out from HSBC ignominy?   I mean they are kissing cousin competitors....SCB always seemd the staid twin compared to swashbuckling HSBC

Thu, 04/09/2015 - 16:12 | 5976270 sam i am
sam i am's picture

 

I predict S&P 2150 by May 1.

For everyone else, this is a nice community to vent;

 

https://www.facebook.com/thevineyardsaker

Thu, 04/09/2015 - 16:42 | 5976388 Variance Doc
Variance Doc's picture

Fuck facebook.

Just go to thesaker.is directly.  Drop some clown credits a.k.a. FRNs while there; they need the support for such a great and informative site.

Thu, 04/09/2015 - 16:23 | 5976316 taketheredpill
taketheredpill's picture

 

 

Pressure on Oil should be down (and HY spreads wider) thanks to Saudi Arabia taking a page out of Ray Kroc management book and bumping production...drown them in Oil!

 

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