New Funds Update: Hot Commodities?

Hedge funds have been among the hardest-hit investors in the recent commodities slump, but the same forces behind those losses are pushing some hedge funds toward the asset class.

The yearlong collapse of oil prices has taken a toll on a number of managers, and falling prices for raw materials from copper to corn have left even giants like Cargill’s Black River Asset Management, which is closing four funds, burned by the strategy. Andrew Hall’s Astenbeck Capital Management, which focuses on crude oil, reportedly lost 16.6 percent in July, the worst month in its history. According to data from industry tracker Hedge Fund Research, commodities managers hold 15 percent less in assets under management than they did three years ago. A natural-resources index operated by derivatives brokerage Newedge reports that returns in that asset class have shrunk significantly, from about 10 percent in 2010 to closer to zero last year.

But some managers are spotting opportunities amid the wreckage. Argon Capital Management is prepping a multistrategy commodities fund; the firm is headed by Marcos Bueno, previously a senior portfolio manager at Graham Capital Management, and Aurelia Lamorre-Cargill, former global head of fixed-income structuring for fixed-income, currencies and commodities trading at Barclays Capital.

Argon, which is set to launch early in 2016 with $400 million to $500 million, is a mulitistrategy commodities firm with multiple managers running different commodity-centric strategies across asset classes under chief investment risk officer Bueno. This approach, which Bueno calls “the Moneyball of the commodities space,” is a shift from the traditional portfolio manager hierarchy that he hopes will provide both edge and more-effective risk discipline; he contends those far too often take a backseat to moneymaking.

This structure is fitting for the commodities sector because of the markets’ fragmented nature, which often leads to many small funds focusing on specific asset classes that have significant size constraints, Bueno says.

“By doing this we can put together all of these good managers who know how to do their job but don’t have the scale to be stand-alone entities,” provide more access for investors and encourage “cross-pollination” among managers, he says.

If prices continue their recent volatile ride, experts say, more funds will find reasons to join the fray by buying on the dips. “Commodities managers generally had a good year last year,” says Arvin Soh, a portfolio manager at GAM. “There’s definitely more interest now than there was a few months ago, and we will probably see more in the next few months.”Other recent and planned launches are across the strategy spectrum, many of them focused on credit, corporate events and long-short equity strategies. Paulson & Co. is launching a new long-short health care fund with $500 million, and newcomer Falchion Capital is planning to launch a long-short telecommunications, media and technology fund with $15 million to $20 million on October 1.

Several new macro funds are in the works as well, including Key Square Group, which will reportedly be led by Scott Bessent, formerly of Soros Fund Management, with $2 billion in funds from Soros himself.