Wednesday, September 03, 2008

More on Ospraie Fund closure

As mentioned in the comments section of yesterday's post, Dwight Anderson's flagship Ospraie Fund will be closed down following heavy losses suffered during the recent commodity plunge.

More from Bloomberg:

"Ospraie Management LLC, the investment firm run by Dwight Anderson, will close its biggest hedge fund after slumping 38.6 percent this year because of bad bets on commodity stocks.

The New York-based Ospraie Fund fell 26.7 percent in August after a ``substantial sell-off'' in energy, mining and resource equity investments, Anderson said in a letter to investors yesterday."


The hit to Ospraie is big news on a couple of levels. Dwight Anderson is one of the most highly regarded investment managers in the commodity hedge fund space, and Ospraie Management is one of its biggest players; at one time Ospraie was the largest commodity hedge fund, according to Bloomberg.

Looking beyond the hit to Ospraie Fund and its investors, there is also a growing sense that problems felt by Ospraie will soon hit other funds, especially those involved in similar trades.

Excerpt from, "After Ospraie, more hedge fund closures likely":

"The closure of Ospraie Management LLC's flagship hedge fund is likely to be the first of several such failures, as a slump in commodities and a spike in financial stocks catch out funds with hard-to-sell positions.

Five years of soaring commodity prices have encouraged a flood of investor assets and a raft of new hedge funds, which have sought investment opportunities in an increasingly crowded sector.

However, the recent setback in commodity and energy prices, driven by concerns demand for resources will suffer as economic growth slows, has seen many managers take substantial hits.

Those in illiquid positions face the biggest headache as nervous investors look to withdraw their money at the first opportunity."


In their coverage of the Ospraie Fund collapse, the Financial Times quoted one analyst who agreed with this scenario:

"John Reade at UBS said the collapse of Ospraie was unlikely to be a one-off casualty of falling raw materials prices. “We had heard that a number of investors had been badly hurt by the moves in commodities in July and August. This [Ospraie] appears to be the first confirmation of that, although we do not think that the poor performance was confined to this one company,” he said.

“We have seen signs of liquidation of popularly-owned commodity trades recently, and there has to be a risk that this continues.”

It looks like the shakeout in commodities markets and resource related shares might continue for a bit longer. We'll do our best to keep you posted.

For more on Ospraie and the recent commodities correction, please see the following articles and posts:

1. "After Ospraie, more hedge fund closures likely" (Reuters).

2. "Ospraie's Anderson, long a bullet dodger, is hit" (Hedge Fund.Net).

3. "Hedge fund collapses as commodities hit" (Financial Times).

4. Related posts on Ospraie and Dwight Anderson (Finance Trends).