Hall's Astenbeck fund returns to black as 2012 close nears

Fri Dec 7, 2012 12:28am IST

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(Reuters) - Andy Hall, one of the world's largest commodity hedge fund managers, has returned his Astenbeck fund to profit just before year end, helped by what he described as new winning positions in crude oil and corn.

Until last month, the Westport, Connecticut-based Astenbeck, which has about $4.8 billion under management, appeared headed for a second year of losses after an unexpected slump in crude prices in October tripped up its long positions in oil. The fund fell 5 percent in October for 2 percent loss on the year.

Its fortunes reversed with November's performance, when it recouped almost everything it lost the previous month after a rebound in crude prices put its bullish bets on oil back on track.

With only December's trading left, Astenbeck is now up nearly 3 percent on the year.

The average energy-based hedge fund on HFN Indices, run by New York's eVestment Alliance, is up 0.2 percent for the year through October. November figures are not available.

In a letter to Astenbeck's investors this week, seen by Reuters, Hall said the hedge fund's rebound came despite tough trading conditions in most markets due to uncertainties over the November U.S. presidential elections and U.S. budget talks that should be concluded before the year end.

"Notwithstanding all the media hoopla over the budget negotiations in Washington, the past month was fairly constructive for owners of risky assets - especially for the ones that we own," Hall wrote.

He said the fund's wins in oil were helped by longer-dated bets on crude that Astenbeck traditionally favored, and a new spread combining nearby futures with deferred contracts.

"A few months ago, we supplemented our exposure to longer dated oil with a time spread position that involves owning first and second month futures against offsetting positions approximately nine months forward," he said in a revelation of trading strategy. "Happily this 'hedge' currently has positive carry."

On an annualized basis, the gain from the new position was about 6 percent, Hall said, thanks to the "backwardation" in the crude oil market, which is when it become profitable to roll from costlier nearby contracts to cheaper deferred ones.

Liquidity in the new spread position was also high, allowing quick exits and adjustments, and the additional risk it brought to the portfolio was quite low, he said.

With November's win, Hall has a tally of six positive months for the year. The former Citigroup (C.N) oil dealer, who earned more than $100 million in trading bonuses before setting up Astenbeck in 2008, declared a 4 percent loss at the hedge fund last year -- his first ever as a trader.

Clive Capital, another major commodity hedge fund with significant positions in oil, was down about 3 percent for the year at October's close after the slide in crude prices.

Benchmark Brent crude prices fell 3.1 percent in October, before rebounding 2.3 percent in November.

Clive, based in London and run by former Moore Capital trader Chris Levett, had $3.3 billion under management as of October. Its November performance is not known.

In his November letter, Hall said Astenbeck had also initiated a new position in U.S. corn last month.

"If we do see a fourth straight year of disappointing production of corn, we think the mid $8 (per bushel) levels seen earlier this year will be eclipsed," he wrote.

U.S. corn futures are currently hovering above $7.50 per bushel.

"While grain prices have a more speculative element to them, and there are some mixed signs from China, we believe that - again, thanks to a backwardated market which prices next year's corn 15 percent below this year's corn - we are getting a suitable risk reward profile for this investment," Hall said.

(Editing by Leslie Gevirtz)

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