BLBG:Merchant Commodity Hedge Fund Cuts Jobs After Second Losing Year
The Merchant Commodity Fund, managed by London-based Doug King, cut a third of its staff after two consecutive years of losses during which assets under management slumped almost 90 percent.
The hedge fund cut five jobs last month, including traders and analysts in Singapore and London, and now has 10 people, Chief Risk Officer Michael Coleman said in an interview. Assets dropped to $170 million in January after investors withdrew money, according to Coleman. Merchant, set up with $10 million in June 2004, had managed $1.56 billion at the end of 2010.
The struggle at Merchant, which bets on agriculture and energy, reflects an industry trend. Combined assets at more than 400 commodity hedge funds fell 5 percent to $78.9 billion in 2012, the first drop since the 2008 financial crisis, according to New York-based researcher eVestment|HFN. Raw-material hedge funds lost 3.8 percent in 2011 and 2.6 percent in 2012, according to the Newedge Commodity Trading Index.
“It’s very hard for hedge funds that lost a lot of assets to turn things around,” said Richard Johnston, Hong Kong-based Asia head of Albourne Partners Ltd., which advises investors on hedge funds and other alternative investments. “We sometimes respect the people that stay focused and try to win people back. But that can take a long time.”
Merchant declined 7.6 percent last year after a 29.9 percent slump in 2011, according to the December report to investors. Still, the fund has returned 210 percent since June 2004, according to the report. The last 20 percent performance fee was received in early 2011 for the results of the preceding year, Coleman said, when the fund returned 27.6 percent.
‘Make It Work’
“We decided to get the headcount to be in line with the assets,” King said from London yesterday, without identifying those who were cut. “We are committed to make it work.” The fund now has two traders left that work with King, he said.
One of the employees affected has been shifted to Coleman and King’s physical-trading unit, RCMA Commodities Asia Pte Ltd., according to Coleman. The number of staff at Merchant peaked at 16 in early 2010, he said.
Commodities tracked by Standard & Poor’s GSCI Spot Index rose 0.3 percent last year, climbing for a fourth year. Gains were led by wheat and soybeans amid the worst U.S. drought since the 1930s, while coffee, cotton and sugar declined the most.
‘Ugly Year’
Merchant was reorganized last year after the decline in 2011, which was the first year of losses after seven annual gains. Coleman suspended his trading career to focus on risk, leaving King to trade most of the assets. King described 2011 as an “ugly, ugly year,” according to an earlier interview with Bloomberg.
Hedge funds that closed down after losses last year included Pierre Andurand’s $1 billion BlueGold Capital Management, which lost as much as 34 percent in 2011, and Fortress Investment Group LLC’s $500 million commodities fund.
Most of the asset slump at commodity funds last year came from performance-related losses, with the rest from investors taking money out, according to Peter Laurelli, vice president of the research group at eVestment|HFN.
To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
