Clarium Hedge Fund Gained on Stock, Commodity Wagers

Date: Thursday, September 25, 2008
Author: Saijel Kishan, Bloomberg

Clarium Capital Management LLC, the $7 billion hedge-fund firm run by PayPal co-founder Peter Thiel, profited from turmoil in financial markets as he almost doubled his U.S. stock holdings and wagered commodity prices would fall, according to an investor letter.

The firm's Clarium LP fund rose 1.8 percent in the week ended Sept. 19, boosting the return to 27.8 percent for the year, according to estimates given to investors. Hedge funds fell an average of 1.4 percent last week, bringing the loss for the year to 8.4 percent, according to Hedge Fund Research Inc.'s HFRX Global Hedge Fund Index.

About 71 percent of Clarium's assets, including positions established with borrowed money, was in U.S. stocks it expects to rise, compared with 36 percent a week earlier, according to the letter. The fund increased short positions on commodities, in anticipation that prices would fall, to about 14 percent of assets including leverage from 0.4 percent.

``It takes a lot of conviction to be a contrarian in these markets, especially given the state of flux markets are in at the moment,'' said Mehraj Mattoo, the London-based global head of alternative investments at Commerzbank AG.

Stocks last week staged their biggest two-day rally in 21 years after regulators cracked down on speculators betting against financial companies and the U.S. government announced a $700 billion plan to buy troubled assets. Commodities, as measured by the UBS Bloomberg CMCI Index, dropped 1.14 percent.

Leverage Increased

Clarium borrowed $1.40 for every $1 of capital invested as of Sept. 19, compared with 40 cents for every $1 a week earlier, according to the update given to investors. Thiel's long holdings of non-U.S. equities -- those he expects to rise in price -- fell to 7.4 percent from 30.9 percent of assets.

Armel Leslie, a spokesman for the fund, declined to comment.

Clarium is a macro hedge fund that seeks to profit from broad economic trends by trading stocks, bonds, currencies and commodities. The fund lost as much as 13 percent in August, its biggest monthly loss, after declines in its positions on equities and the dollar.

Macro hedge funds have declined by about 1.8 percent this month and 1.7 percent this year, according to Hedge Fund Research in Chicago.

Thiel, 40, started San Francisco-based Clarium in 2002 after selling online-payments service PayPal to EBay Inc. for $1.5 billion. Thiel graduated from Stanford University with a degree in philosophy and earned a J.D. from Stanford Law School. He practiced law with New York-based Sullivan & Cromwell LLP, and first traded securities at CS Financial Products.

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.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net