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Ospraie Sees a Rebirth in Its Hedge Funds

Date: Friday, May 15, 2009
Author: Cyrus Sanati, The New York Times

It looks like hedge fund managers that lost big when the markets plunged last year are already planning their revivals.

Take Ospraie Management. The investment manager apparently plans to open up two new commodity-related funds in July — less than a year after it was forced to shut down its main Ospraie commodity fund, according to a letter obtained by Bloomberg News.

The Ospraie Fund had at its peak around $3.8 billion in assets under management. It rode the commodity bubble all the way up and pocketed millions of dollars in management and performance fees from its gains.  

But when the commodity bubble finally popped, the fund experienced heavy losses. The game was over in August when it recorded a 27 percent loss, causing investors to redeem their money in droves.

The decision to close the fund saved Ospraie and its founder, Dwight Anderson, the unenviable task of trying to make the money back for investors.

Ospraie, like most hedge funds, probably could not collect its hefty performance fee until the fund recouped its losses or passed its “high water mark.” The fund was down 39 percent for the year, which meant that it could take years of careful investing just to get back in the position to make money again — if ever.

Shutting the fund down allowed Ospraie and the other 1,441 funds that also threw in the towel last year the ability to press the reset button and start from scratch. The question is: Will investors line up again to give these failed hedge fund managers more cash? Mr. Anderson hopes so.

“After much reflection and with a number of lessons learned, we see a set of opportunities today that we believe could create significant value for investors in the coming years,” Mr. Anderson said in his letter dated May 12, Bloomberg reports. “That opportunity set is as compelling as I have seen in my 15 plus years of investing in the basic industry space.”

To sweeten the pot, Mr. Anderson is taking a haircut on his fees. Ospraie Fund clients who choose to reinvest in Ospraie’s new funds will pay just a 1 percent management fee and a 10 percent performance fee. That is half off the industry standard 2 percent management fee and 20 percent performance fee.

Jonathan Gasthalter, a spokesman for Ospraie, did not return calls for a comment on the letter and the new funds.

– Cyrus Sanati