Schroders’ commodity hedge fund to shut

June 3, 2014 8:02 pm

Schroders’ commodity hedge fund to shut

By Gregory Meyer in New York

A prominent backer of commodities hedge funds is shutting down after investors frustrated by market doldrums and high management fees took their money elsewhere.

Schroders’ Opus commodities fund, which contained $2.3bn at its peak, is closing after assets dwindled to hundreds of millions of dollars, according to people familiar with the matter. David Mooney and Cédric Bellanger, co-portfolio managers, will leave London-based Schroders.

Opus was part of NewFinance Capital, an alternative investment group that Schroders acquired in 2006. The business was one of a handful of niche funds of commodities hedge funds, which farm out investor cash to star traders in markets such as oil, copper or grain.

As of last year Opus had stakes in 17 commodities hedge funds, including Astenbeck, managed by legendary oil trader Andy Hall; Red Kite, a metals specialist led by Michael Farmer and David Lilley; and CC+, run by London-based cocoa trader Anthony Ward, according to a letter to investors.

Moneymaking opportunities have dried up in the past few years as resurgent supplies and a steady economic recovery damped price moves, the lifeblood of traders. The Newedge Commodity Trading Index, a hedge fund yardstick, fell three straight years from 2011-2013 and is up 3 per cent so far this year, less than the unmanaged Dow Jones-UBS commodity index.

Higgs Capital, a commodities hedge fund which Opus counted as a holding, closed in December. Last year Clive Capital, once one of the largest commodities hedge funds, shut down. Founder Chris Levett is returning to his former home at Moore Capital, Bloomberg reported.

Investors pay funds of hedge funds such as NewFinance a second layer of fees on top of fees paid to individual managers.

Schroders said: “We can confirm that in the best interest of shareholders, Schroders has decided to wind up Opus Commodities Fund Limited and Opus Commodities Core Plus A Fund Limited given pending redemptions and the challenging market for commodities more generally.”

Mr Mooney is widely known in commodities circles, joining Schroders after a career at banks and companies including Merrill Lynch and Trafigura. He has close relationships with managers willing to make bold bets on the direction of commodities prices.

“We believe that utilising active discretionary approaches to gain commodities exposure provides a significant opportunity to generate superior returns,” he wrote in a January 2011 note.

Mr Mooney now had doubts about the value of investing in star traders and charging additional fees, a person familiar with his thinking said.

The letter to Opus investors said the fund lost 5.58 per cent in the month of October 2013 as several traders bet wrongly on how fast oil stocks at Cushing, Oklahoma – the delivery point for US crude futures – would fall last summer.

“Four managers saw potentially the biggest opportunity in commodities markets this year and put on significant exposure through a number of trades with a common underlying rationale,” the letter said.