UPDATE 1-Hedge fund firm Polygon launches mining fund - source

Fri Sep 14, 2012 11:27am EDT

By Laurence Fletcher

LONDON, Sept 14 (Reuters) - British hedge fund firm Polygon has launched a mining fund, a source close to the fund said, as it tries to rebuild its business after high-profile losses during the credit crisis and profit from a sector some investors believe may have peaked.

The mining fund was launched quietly during the summer with internal seed capital, said the source, and will make bets on the shares of mining companies rising and falling.

Polygon declined to comment.

The launch marks the latest stage in the revival of a firm that managed $8.5 billion before credit crisis losses helped to push assets down as low as $3 billion.

Last year it hired its first ever chief executive and completed the liquidation of its flagship Global Opportunities Master fund, which tumbled 48 percent in 2008's market chaos.

The firm is now focused on running a broad range of funds.

The launch comes during a turbulent time for the mining sector, which last week saw trader Glencore surprise investors with a last-minute improvement to its now-$36 billion bid for miner Xstrata.

Sharp falls in some commodity prices, particularly in iron ore and coal and driven by a drop in Chinese demand, has seen the Thomson Reuters Global Metal & Mining index fall 13 percent from February highs and forced mining companies to review their investment plans.

Nearly half of a $246 billion pipeline of planned mining investments in Australia are frozen or likely to be delayed, while last month Australia's resources minister said the resources boom was over, although he later rowed back.

Hedge funds are able to profit from both rising and falling prices by either buying shares or short-selling them - borrowing shares you don't own and then selling them in the market, with the aim of buying them back later at a cheaper price.

According to Polygon's website, its mining strategy uses a "bottom-up" approach to try and identify "misunderstood and mis-valued companies".

Mike Humphries, one of the firm's principals, who also manages the firm's convertible bonds fund, and Peter Bell, who worked in the mining industry for 18 years and who was a mining analyst at hedge fund firm MKM Longboat, are joint chief investment officers of the mining strategy.

Humphries' convertible bond fund is up 9.23 percent this year, having gained 10.99 percent last year.

So far in 2012 there had been an outflow of almost $6 billion from commodity investments globally, Barclays said on August 24, although in July there was an inflow of $463 million.