Commodity hedge fund loses $400m in oil slide

As I had said before on my blog - HFs are extremely bullish on oil - like a herd who has lost his senses...

Oil crashed and we can see what happened below...

By Sam Jones in London
Published: May 8 2011 23:00 | Last updated: May 8 2011 23:00

Clive Capital, the world’s largest commodity hedge fund, has been left nursing losses of more than $400m as a result of the collapse in the price of oil last week.
London-based Clive – which manages an estimated $5bn of client money – is the biggest of several large hedge funds believed to be reeling after the unexpected sell-off hit markets late last week.

Others, including Astenbeck Capital, the Phibro-owned fund run by Andrew Hall, are thought to have taken double-digit percentage point losses to their portfolios, according to investors.
The scale of the losses demonstrates that even the savviest investors in commodities were wrongfooted by the correction, one of the sharpest one-day falls on record.
In a letter sent to investors on Friday and seen by the Financial Times, Clive said it was down 8.9 per cent on the week after what it called “extraordinary” price movements on Thursday. Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”.
Clive’s letter said: “The move in Brent represented about a 5 standard deviation move, while WTI was a 4 standard deviation move”. A five standard deviation daily move is an exceptionally rare event.
“Economic data were soft early in the week though micro news for oil continued to be bullish. Indeed there was news out earlier in the week of further supply disruptions in Yemen and a substantial technical supply outage in the UAE,” the fund said.
While several fund managers had been slowly positioning themselves for a correction, the speed and scale of the event caught most – including Clive – off guard. At its low of $105.15 a barrel on Friday, benchmark Brent crude oil had dropped more than $16 in two days.
Thursday’s sell-off was started by retail and non-traditional investors taking profits; this triggered automatic selling from quantitative funds and precipitated a rout. The correction means Clive is now slightly down on the year, after strong performance over the first four months to April.
Most managers remain bullish, however, and expect commodity prices to continue to rise. “Physical markets are quite strong,” said Clive in its letter. “We remain positioned in a number of markets.”
Commodity hedge funds are used to volatile portfolio moves. In spite of similar historical setbacks, Clive has a record of returning, on average, 27 per cent on investors’ capital a year.
The fund manager was set up in 2007 by Chris Levett, a former trader at Moore Capital, the global-macro hedge fund run by Louis Bacon.