Commodity funds Clive and Merchant gain from mid-April upheaval

Tue Apr 30, 2013 12:14pm EDT

* Clive Capital up 5 percent for this year; Merchant up 12 percent

* Revival comes after 2 dismal years

By Barani Krishnan

NEW YORK, April 30 (Reuters) - Clive Capital and Merchant Commodity Fund, two commodity hedge funds that lost money over the last two years, are on an upswing after their bearish bets on prices benefited from this month's market tumble.

London-based Clive, which manages about $1.4 billion invested largely in energy and metals markets, was up by an estimated 5.2 percent year to date on April 19, performance data obtained by Reuters showed.

Dismayed investors pulled out of Clive last year, when the fund run by former Moore Capital trader Chris Levett lost nearly 10 percent for the second year in a row. Its capital dropped by nearly half in 2012.

Merchant gained an estimated 12 percent for 2013 through April 19, the data showed. The broad-based commodities fund was founded in Singapore by former Cargill trader Mike Coleman and is now run out of London by his partner, Doug King.

Merchant once managed more than $2.5 billion, but now has slightly more than $200 million as many investors redeemed after it lost about 30 percent in 2012 and 8 percent in 2011.

The turnaround at Clive and Merchant comes after commodity markets plunged in mid-April due to investors' worries about stagnating China growth, euro zone debt trouble and uncertainty about further U.S. economic stimulus.

The two outperformed at least half a dozen London-based commodity hedge funds - including Brevan Howard Commodities Strategies, Krom River and Higgs Capital - that got caught on the wrong side of a market hit by volatility.

Brent crude oil fell below $100 a barrel for the first time in nine months after the mid-April selloff. Gold suffered its biggest loss in dollar terms, and copper sank to an 18-month low.

"It pays to be bearish on commodities during the worst of market collapses, and Clive and Merchant seem to have taken the most opportunity of a market that swung their way," said a hedge fund industry source who is familiar with the two funds.

April's roller coaster ride in gold, which took bullion prices down $225 over two days before the market made back half of the decline the next 10 days, has also stung noncommodities-focused hedge fund managers who invest in gold more as a financial asset.

Billionaire John Paulson's best-known fund, the Paulson & Co Advantage, was down 2.4 percent for the month through mid-April, largely because of bullish bets on gold.

Data from the U.S. Commodity Futures Trading Commission for the week ended on April 16 showed hedge funds were betting on price gains in gold even as the market posted a record loss in dollar terms over two sessions that week.

For this month alone, Clive gained nearly 8 percent through April 19, the data obtained by Reuters showed. The fund benefited from short positions, or bets on price declines, in gold, metals and oil, industry sources said.

Clive declined to comment.

Merchant rose nearly 7 percent in the first 19 days of April. Sources familiar with the firm said Merchant profited by shorting petroleum and betting on the direction and relative value in industrial commodities such as rubber, coal, iron ore and cotton. Relative value is a strategy that seeks to exploit price discrepancies between different commodities, their delivery dates and locations.

Merchant Managing Director Coleman declined to comment.

Brevan Howard Commodities, which manages about $900 million, was down 2.3 percent year to date as of April 19. The fund, run by Stephane Nicolas, is part of billionaire Alan Howard's $39 billion Brevan Howard Asset Management, Europe's second-largest hedge fund group. A spokesman for the group declined to comment on the fund's April performance.

Krom River, which oversees about $600 million in assets and is managed by Christopher Brodie, was down 1.9 percent year to date as of April 19. Officials were not available for comment.

Higgs Capital, which has about $350 million under management and is run by Jean Bourlot and Neal Shear, confirmed data obtained by Reuters showing a more than 2 percent drop in the same period.

The $1 billion Armajaro Commodities Fund, managed by John Tilney, was among the few gainers for April, rising 0.6 percent for the month and about 4 percent for the year through April 19. It did not respond to a Reuters email seeking comment.

The average commodity fund was down 0.8 percent for the first three months of 2013, according to a Newedge index that monitors commodity trading funds. April estimates are not available yet.

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