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UK fund Ebullio loses big on base metals bets-report

Date: Thursday, March 18, 2010
Author: Reuters

Ebullio Capital Management's commodity hedge fund suffered its "worst month" since launch in February, slumping more than 86 percent, a report by Ebullio to investors said on Wednesday.

Assets under management fell to $1.47 million in February, and were down 69.65 percent in January, bringing total return down 95.83 percent for the year, the February report said.

In November Ebullio's commodity fund controlled almost 90 percent of London Metal Exchange (LME) tin stocks and cash contracts, traders at the time had told Reuters. [ID:nL9551738]

Lars Steffensen, the managing partner of Ebullio, was unavailable for comment on Wednesday.

The Ebullio Commodity Fund January report had said that return on capital fell an estimated 1.10 percent for that month.

"Some extraordinary circumstances forced the Ebullio Commodity Fund to liquidate and/or cancel parts of the physical book and to liquidate some long held speculative positions, mainly in LME non-ferrous metals," the February report said.

The February report added that the fund is now down 89.63 percent since its launch in August 2008.

"Most managers would probably try to hush this up and not send out this newsletter," it added. "But we have always been about transparency and having broadcast our winning months, we are going to do the same with our (albeit quite a lot more spectacular) losers and take the heat that comes with the territory."

"The manager has mainly spent the last couple of months fighting fires and whilst we have been paying attention to the world and the markets, the broader picture hasn't been top priority," Steffensen said in the February report.

One LME floor trader said the loss came as no surprise.

"We knew he'd lost money but we didn't know how much," he added.

Members of the LME's Tin Committee told the exchange last year that it needed to take action. [ID:nL7149027]

LME lending guidelines state that if an LME member or client holds 50 percent or more of the warrants or cash today/cash positions, it should be prepared to lend at no more than a premium of half a percent of the cash price for a day.

Frustration with the LME was rife within the tin industry and many think the exchange should have acted to neutralise the position. [ID:nL1509642]

The latest LME data on Wednesday showed that a position continues to hold between 40-50 percent of stock warrants and cash contracts in tin. <LME/WC>

Tin CMSN3, used in electrical solder, traded at $17,700 a tonne at 1513 GMT, from Tuesday's last bid at $17,550 a tonne.