By Rob Copeland And Christian Berthelsen
Christian Levett tried an aggressive tack during his first few
days back at an old job.
Rehired last September at $15 billion hedge-fund firm Moore
Capital Management LP in London after an ill-fated stint running
his own firm, Mr. Levett seized a chance for fast redemption. From
his new post in the firm's Mayfair office, the 45-year-old
collector of ancient arms and armor began to bet that oil prices
would drop.
Few on Wall Street or elsewhere foresaw oil's ferocious tumble;
prices are on pace to post their eighth losing month out of the
past nine with Tuesday's close of trading. U.S. crude prices
settled Monday at $48.68, down by nearly half since Mr. Levett
started his trades in September.
The handful of traders to get ahead of the historic slide
included an array of on-the-outs hedge-fund executives whose
bets--informed by early signals of surging global oil output and
weak demand--put them on the comeback trail.
Mr. Levett's wagers, to which he added throughout the plunge,
helped book tens of millions of dollars in profits for Moore in his
first few months, giving the hedge-fund firm founded by billionaire
Louis Bacon relief during a rare money-losing period.
Two former traders for commodity giant Cargill Inc., Michael
Coleman and Doug King, notched a nearly 70% gain in their Merchant
Commodity hedge fund over the past 15 months, earning them fees
based on performance for the first time in four years. And Pierre
Andurand, a former Goldman Sachs Group Inc. oil trader, tallied
profits of more than $200 million and counting after he reversed
his bets on rising prices in September.
"It was a relief," said Mr. Andurand, 38, who founded Andurand
Capital Management LLP on the ashes of his earlier effort, BlueGold
Capital Management LLP, which folded after losing 34% in 2011.
For some commodities traders, the chance to profit came too
late. Commodity hedge funds came into vogue during the extended
rise in raw materials prices during the 2000s, but many investors
backed away in recent years as performance faltered amid stagnant
markets. Merchant, for instance, recently was down to about 10% of
the $2.5 billion it managed in 2008, with most of the remaining
cash belonging to its two founders.
Of those who endured, only a small cohort spotted that the
paradigm dominating global oil markets since the late
1990s--constrained global supplies and swelling demand driven by
China's growth--was about to crumble.
In some cases, their views were expressed through a simple
wager, with so-called short sales of futures contracts for the U.S.
and global oil benchmarks. Short trades are profitable when prices
fall.
The investors also used complex strategies, such as betting on a
widening gap between current prices and future ones, which pays off
when current prices fall in comparison with those on future
dates.
At his desk last June in an angular glass-and-concrete building
near Harrod's department store in London's Knightsbridge district,
Mr. Andurand noticed prices falling for cargoes of oil in Europe's
North Sea--a surprising signal that real-world demand for physical
oil was sagging. Later in the summer, further convinced by
lower-than-expected demand figures from international energy
monitors, Mr. Andurand reversed wagers on rising prices to bet on a
fall.
Those bets quickly turned profitable as oil swooned and
producers continued delivering millions of new barrels of
crude.
That resulted in crushing budget problems for major
oil-producing countries from Russia to Venezuela, and sudden cash
shortfalls for previously highflying energy companies.
Others on Wall Street, like former Morgan Stanley trader Stephen
Jamison, missed out on big profits. He largely stopped betting
against oil in his nearly $2 billion Koppenberg Macro Commodity
hedge fund in November when it was trading around $80, nearly
double its eventual bottom, because he was spooked by uncertainty
over the Organization of the Petroleum Exporting Countries'
decision on whether to keep up production, a person familiar with
the firm said. A representative of the firm declined to
comment.
Pimco's $11 billion Commodity RealReturn Strategy Fund, one of
the largest investment funds in commodity markets, lost 27% in the
past 12 months through Friday. The firm cited oil's collapse as a
key factor in the fund's performance.
For the most part, very few traders have "been willing to stick
their neck out" and bet against oil, said Stephen Mason, an
investor in hedge funds at Collins Capital Investments LLC in Coral
Gables, Fla.
Before the fall, few had more ground to regain than Messrs.
Levett and Andurand.
Mr. Levett had a profitable early career trading oil for
American International Group Inc., and later for Moore. He left in
2007 to start Clive Capital, and later founded a classical art
museum on the French Riviera to display his wide collection of
priceless antiquities.
Clive grew to be a giant among commodity hedge funds, with more
than $5 billion under management at its peak. But Mr. Levett closed
it in September 2013 as assets dwindled to around $1 billion on the
heels of a yearslong commodities slump.
Mr. Andurand, a former competitive swimmer and chairman of a
kickboxing league, became one of the oil market's best-known
traders for correctly predicting oil's surge to its record of $145
a barrel in 2008 and its subsequent collapse. Elton John performed
at his wedding to a Russian model in 2011.
The following year, he liquidated his once $2.4 billion
hedge-fund firm, BlueGold, in the wake of double-digit percentage
losses on oil swings.
A degree of stabilization has come to crude markets of late amid
an influx of billions of dollars in investor capital, particularly
from retail traders who believed prices had bottomed out. Some
managers have pulled back on bets that prices will fall much
further. But some of the biggest winners remain bearish, and as the
supply glut continues to grow, that market stability is beginning
to fray and prices are falling again.
"I think there's more pain to go through," Mr. Andurand said. He
forecast oil could hit $25 a barrel before this summer.
Nicole Friedman contributed to this article.
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