“I picked a bad day to quit sniffing glue.”
Today I likely lost the biggest account I have ever had. I did nothing wrong, the fund my client owns is having a volatile but positive year, but they (now likely me) are a victim of institutional and media panic.
The fund is Anglian, the account is $30 million plus and the reason is Amaranth , Vega and the Wall Steet Journal.
Anglian trades in energy derivatives and other commodity markets. Julian, the wily and experienced manager has had a highly volatile year. The fund is supposed to be low volatility. Strike one.
Amarenth blew up earlier this month – not Julian’s fault – but energy guilt by association. Strike 2.
Vega, the back office and marketing partner for Julian and Anglian is now in the news as their flagship fund is reported to be down 25 percent. The Wall Street Journal is fanning the flames implying that Vega has dropped from $12 billion in assets to $3 billion. STRIKE THREE.
Julian has smartly and calmly explained the fund’s positions (see PDF below), but that won’t matter to the institutions. The sell buttons are in full swing.
I am going to have to turn on Adsense!
I think your investor has a good sense of market understanding. I’m surprised it took him this long to exit his position.
1) 5% return with high volatility in the commodities markets is mediocre. In a zero sum game they are on the positive side of the bell shaped curve.
2) Julian, Uday, etc don’t have experience in trading equities or metals. Julian traded oil for Shell, Bankers, a Greenwich hedge fund, Bank of America. Uday traded energy and power of MG (the German blowup), Unocal and Koch. Although they maybe up in these activities it seems more like circumstance than experience. Remember this is on ON-the-Job-Training. Investors are paying for experience and they are not getting it.
3) A long-term fuel oil to natural gas spread trade may work out, but who knows. I’m sure at year end when they mark-to-market their position they won’t calculate the cost to exit the position. They will do everything to juice the NAV of the fund to capture the 20% performance fee. Remember fuel oil will be marked from the OTC market quotes.
4) They highlight the point the fund is uncorrelated to the GSCI. So why would anyone invest in a commodity hedge fund that has no correlation to commodities. To a casual observer like me it makes no sense. Given that the GSCI is heavily weighted towards energy why would guys with mainly energy experience create a fund that has no correlation to energy?
5) They have a systemic trading strategy. For those unfamiliar to that term it means “a black box” system. That is what CTAs and firms like John Henry are doing. They are having a tough go at it despite having many years of experience and large groups of quants. To the best of my knowledge they only got one guy doing it.
6) They seem to be proud they aren’t trading natural gas. But isn’t that what an energy hedge fund is supposed to do?
If investors did a little more due diligence like your investor they would save themselves a lot of future trouble.