Monday, October 29, 2007

Volatility in the commodities market

Update (9/3/08): the latest news on the Ospraie Fund closure.

Found an interesting story over at which details the high levels of volatility in the commodities markets.

What's remarkable about this piece is that they've managed to interweave the subject with an inner look at the workings of Dwight Anderson's Ospraie Fund. According to Bloomberg, Ospraie Management LLC is the world's biggest commodity-focused hedge fund, with $7 billion under management.

Most of the commentary on Ospraie and Anderson's vision seems to be pieced together from indirect sources and relayed quotes (from the likes of Marc Rich), but it is still surprising to see the players behind this prominent hedge fund placed in center focus. Lots of background info on the fund and Dwight Anderson's career are found here.

Which leads me to the following question: are hedgies slowly warming to the media spotlight? Or is it just that reporters are piecing together more info on their dealings and personalities, knowing that we want to read about them?

Here's an excerpt from Bloomberg's story, "Ospraie's Anderson Dives Into Commodities, Survives Swoon".

The Ospraie Fund makes long and short investments -- that is, it bets values will rise or fall -- on the prices of commodities such as oil, copper and corn and on the shares of companies in basic industries such as energy, mining and agriculture. What hurt Ospraie and other commodity hedge funds in mid-2007 were the wide, sometimes unpredictable, swings in prices in all markets.

``Commodities are more volatile compared with stocks and bonds,'' Banque SYZ's Friche says. ``So the stakes are higher, which means that while there are great profits to be made, there are great losses too. It's a dangerous game.''

Enjoy the piece. For more background on Ospraie and commodity focused hedge funds, click the link to view our previous posts.