Ospraie to Close Flagship Hedge Fund After 38% Loss

Date: Wednesday, September 3, 2008
Author: Bloomberg.com

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.

Losses at Ospraie, once the largest commodity hedge fund firm, underscore how the sudden swing in commodities caught even experienced managers off-guard. The Morgan Stanley Commodity Related Index of 20 mining, energy and agricultural companies declined 13 percent in July and August as the slowing global economy cut demand for raw materials.

``Commodities have been the story du jour, what with China's 1.2 billion population industrializing,'' said Peter Rup, chief investment officer at New York-based Orion Capital Management LLC, which invests in hedge funds. ``It's easy to find a trend and ride the train. The problem is, managers don't know when to get off it.''

The shuttering of the Ospraie Fund, which opened in 1999 and managed $2.8 billion at the start of August, leaves Anderson's firm with three funds overseeing more than $4 billion of assets, down from $9 billion in March.

``I am extremely disappointed with this result and the fund's sudden reversal in performance,'' Anderson, 41, said in the letter. ``After nine years of striving to be a good steward of your capital, I am very sorry for this outcome.''

Jonathan Gasthalter, a spokesman for Ospraie, declined to comment.

ConAgra Foods

Lehman Brothers Holdings Inc., based in New York, bought a 20 percent stake in Ospraie Management in 2005 and Zurich-based Credit Suisse Group AG invested an undisclosed amount the following year. Ospraie this year bought ConAgra Foods Inc.'s commodity-trading unit for $2.8 billion.

The Ospraie Fund had returned an average of 15 percent annually through the end of last year. Anderson generally invested about half of the fund in shares of natural-resource companies and the rest in commodity futures such as oil and zinc. Investments are usually held for two years.

Futures are contracts for delivery of a security at a specified time in the future at an agreed price.

Ospraie Shareholdings

Ospraie plans to return 40 percent of the fund's assets to investors by the end of September and another 40 percent by year- end, Anderson said in the letter. The remainder, mostly held in so-called illiquid investments, may take as long as three years to distribute, he said.

Clients were locked into the fund for two or three years, depending on the fees they paid. The fund's loss of more than 30 percent triggered a clause that would have allowed investors to withdraw money at the end of September.

Ospraie's remaining funds include the $1.2 billion Special Opportunities Fund, which makes private-equity-type investments in companies such as miners and barge operators; the $200 million Real Return fund, a so-called long-only fund that bets on rising commodity prices; and Wingspan, which invests in other hedge funds that together manage $2.5 billion.

The Standard & Poor's GSCI index of 24 commodity futures declined 18 percent during July and August, led by losses in oil and oil products, soybeans, aluminum and copper. Ospraie's largest shareholdings included oil and gas producer XTO Energy Inc., International Paper Co. and chemicals company Cytec Industries Inc., fillings with the U.S. Securities and Exchange Commission show.

`Horrible Quarter'

Anderson has faced losses before. The Ospraie Fund fell 19 percent in the first five months of 2006 on losing bets in the metals market. That year the firm also closed its Point Fund, which had slumped 29 percent.

``The fact that I had a horrible quarter is a statistical probability, and we had always told people there is that possibility,'' Anderson said in an interview last year. ``We do everything that we can to manage the risk, and I think we're better at it today than we were a year ago.''

Anderson graduated from Princeton University with a degree in history and earned a master's in business administration at the University of North Carolina at Chapel Hill. He joined Julian Robertson's Tiger Management LLC in 1994 and was soon put in charge of the New York-based hedge fund's basic-industries group.

Five years later he moved to Tudor Investment Corp., the Greenwich, Connecticut-based hedge-fund firm run by Paul Tudor Jones. Anderson started the Ospraie Fund at Tudor, named after the marine bird of prey. He spun off from Tudor in 2003.

Conference Call

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested. This year they've lost 5.09 percent through Aug. 28, according to data compiled by Chicago-based Hedge Fund Research Inc.'s HFRX Global Hedge Fund Index.

Ospraie has planned a conference call for investors tomorrow at 9 a.m. New York time.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; and Saijel Kishan in New York at skishan@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.