Exclusive: Astenbeck hedge fund down 14 percent in "Mensis Horribilis"

Tue Jun 5, 2012 5:45pm EDT

(Reuters) - Andrew Hall's $3.1 billion commodity hedge fund lost 14.4 percent in May, as crude prices tumbled a month after the legendary energy trader told investors he was bullish on oil because of tightening global supplies, according to sources familiar with the fund's performance.

The poor showing in May for Hall's Astenbeck fund - the second-largest monthly loss in its history - means it was down 6.4 percent for the year through May 31, fund data given to Reuters shows. That wiped out Hall's gains in the first quarter of 2012 and means Astenbeck must crawl out of a hole to avoid a second straight year of losses.

In a letter sent to Astenbeck's investors on Monday, obtained by Reuters, Hall called May a "mensis horribilis" - Latin for 'horrible month' - "for nearly all risk assets and anyone who owned them."

Notoriously risky commodities markets got slammed last month, due in part to worries over the solvency of euro zone countries, including Greece. U.S. oil prices fell by 18 percent, the most in percentage terms since December of 2008.

"We clearly should have sold in May (actually on the first of the month) and gone away but did not," Hall wrote.

Hall, 61, owns 80 percent of Astenbeck's management firm, with a total of $4.4 billion under management. He is also CEO of Phibro Trading, a century-old commodity trading firm now owned by Occidental Petroleum Corp (OXY.N). Oxy controls 20 percent of Astenbeck's Westport, Connecticut-based management firm.

"Oil prices were particularly hard hit," Hall wrote, adding that "We have reduced our risk and adopted a more defensive posture."

One of Astenbeck's biggest rivals fared far better last month. London-based Clive Capital, a commodity fund with around $3 billion under management, rose 8 percent in May for a year-to-date gain of around 3.5 percent, sources familiar with its performance said.

This year, the average energy hedge fund rose 8 percent through April, according to data from Chicago-based Hedge Fund Research. Average energy fund performance data for May was not yet available.

Hall is hardly the only hedge fund heavyweight to struggle this year. Peer commodity funds BlueGold in London, and natural gas-centered Centaurus from Houston, announced they would cease operating this year. Sources who tracked the funds blamed their troubles on a downturn in energy prices and investor redemptions.

DEFIANTLY BULLISH

Oxford-educated Hall is known for his steel-nerved bets on the direction of world oil prices, but was wrong-footed in May by a crude price plunge, sources familiar with Astenbeck's performance said.

U.S. crude prices fell in May to a seven-month low as U.S. oil inventories rose to their highest since 1990. London-traded Brent fell 15 percent last month, partly on threats that the euro zone crisis will hit economic growth and crimp fuel demand.

In early April, Hall struck a defiantly bullish tone on oil markets, telling Astenbeck's investors in a letter that "Globally, oil markets look set to tighten through the balance of 2012." He added that OPEC's spare oil production capacity could be whittled down to "wafer-thin" by year's end.

Astenbeck's May losses stemmed in part from falling commodity prices caused by Europe's economic turmoil, slowing growth in China, rising oil output from OPEC kingpin Saudi Arabia and the United States, and less perceived threats of oil supply shortfalls from Iran, Hall told investors this week.

Astenbeck began trading in 2008. Before falling by 4 percent in 2011, Hall's funds - including Astenbeck's predecessors - posted more than a decade of consecutive annual gains.

Hall famously earned a $100 million annual bonus for hugely profitable bets on oil prices in 2008, a year when crude surged to a record $147 a barrel. Hall's Phibro unit was then owned by Citibank Inc (C.N) and his bonus generated controversy since Citi received $45 billion in U.S. taxpayer aid during the U.S. economic recession. Oxy bought Phibro from Citi in 2009 for $370 million, keeping Hall on board and allowing him to pocket the big bonus.

Hall, a towering, slim Briton, is also renowned in the art world for the impressive private collection of contemporary art that bedecks his 1,000 year-old castle in Germany. David Blumenthal, an Astenbeck officer, declined to comment on the fund or its performance and Hall could not be reached.

Sources at funds of hedge funds - which invest money into other funds - said Clive Capital fared better than Astenbeck in May because its London-based head trader, Chris Levett, took a short position in oil markets - accurately betting that prices would fall. But Clive's loss in 2011, around 10 percent, was more than twice Astenbeck's, they added.

During the first week in May, according to data released by trading regulator the U.S. Commodity Futures Trading Commission, hedge funds and big speculators made a record cut in bullish bets on the oil price, unloading crude contracts worth some $8 billion during the week and paring overall long positions by more than a third. That drop shows not only bullish investors running for the exits, but also bearish traders increasing their short bets on oil prices.

Astenbeck trades oil and a range of other commodities.

(Additional reporting by David Sheppard, Jeanine Prezioso, Robert Gibbons; editing by Andre Grenon)

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