Trafigura hedge fund targets $3 bln by year-end

GENEVA Thu Feb 9, 2012 11:21am EST

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GENEVA (Reuters) - Galena, the fund arm of trading house Trafigura, aims to grow by almost 50 percent this year to around $3 billion (1.9 billion pounds) as opportunities abound in a choppy market for commodities and energy, the fund's head said in an interview.

Galena is already a large hedge fund manager in commodities and uses the know-how of its parent to glean on-the-ground knowledge from Mozambique to Mongolia, spot new projects and sift value out of distressed assets.

"You've got to be large. The relationship between Trafigura and Galena is a good one, it works. We want to continue to leverage off it," Jeremy Weir, its chief executive and Trafigura board member, told Reuters.

Galena currently manages around $2.1 billion in assets, but Weir expects new funds and the growth of existing funds to boost that amount.

The fund manager expects this year, like 2011, to be a challenging trading environment characterised by turbulent politics and a lack of clear trends.

The hedge fund had a mixed year in 2011, logging an 11.32 percent gain in its flagship metals fund but a 28.02 percent loss in its Special Situations Fund, which is invested in commodities and equities, due partly to concerns about growth in China.

But Weir is confident its agile traders will be able to make money out of disconnects in the market through relative-value trades, picking the best spot on futures curves and a mixture of long and short positions.

"Markets are volatile within a broad range. Moves have often come out of left-field. It's a difficult environment to manage because it's non-trending ... You have to get your timing right," he added.

A former metals trader who has been at the helm of Galena since it started in 2003, Weir warned there are no clear and easy trends emerging in commodities for 2012.

But he does foresee the potential for some longer-term trends in the market, such as long-term gains on industrial metals including copper.

"I would say the China story is generally intact. You have to say we are going to see a generally buoyant market. Has copper got some potential upside? Yep, but you have to pick your timing right, because it could still drop 10 percent before it goes up 20 percent," he said.

This chimes with the view of Trafigura's chief economist, Alan Williamson, who said last month that copper, tin and zinc could finish the year as much as 25 to 50 percent higher due to monetary easing in key emerging markets.

2012 PROSPECTS

So far, Galena's January estimates point to a muted start to the year with gains of 2 to 4 percent on its metals fund, energy fund and special situations fund.

Its commodity trade finance fund has eked out an estimated gain of just 0.46 percent in January, and its Commodity Macro Fund, which is just opening to outside investors, is down by around 1.5 percent.

Despite the weak start to the year on trade finance, Weir sees this as a promising growth areas for Galena as European banks withdraw from the sector because of a lack of dollar funding and increasing regulatory pressures.

"We're starting to see family offices and sovereign wealths really starting to look at this. Can you run billions in this fund? Yes, you can," said Weir.

By April, Galena plans to launch a private equity fund of up to $1 billion focused on spotting small to mid-sized companies in the mining sector.

For now, gold is still attractive, Weir said, but added that investors had to be nimble and prepared to exit the market if fundamentals changed.

A dash for cash overwhelmed gold's traditional status as a safe haven in times of uncertainty at the end of 2012, and it ended December down over 10 percent. So far this year it has risen more than 10 percent.

"I would look for two warning signs: major resolution in terms of the euro zone and secondly if you start to see an increase in interest rates," he said.

As for oil, the risk of disruption in the Middle East, such as a closure of the Strait of Hormuz, is mostly priced into the sector, Weir said, and he did not expect a rally to be sustained.

Galena Hedge Funds January return * 2011 return

Metals Fund +2.57 +11.32

Special Situations Fund +3.20 -28.02

Energy Fund +2.20 +0.88

Commodity Trade Finance +0.46 +5.66

Commodity Macro Fund -1.50 N/A

* Based on Galena estimates

(editing by Jane Baird)

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