Hedge Funds: the bell tolls for Ospraie

A few weeks ago, I said I thought the volatility in commodity and currency markets smelled like panic. I found it very hard to believe that we could have such violent moves without a significant shakeout in the hedge fund world. We are now beginning to see that shakeout.

Ospraie Fund has just collapsed, losing nearly 40% on the year. At least it wasn’t 100%. But, this is bad news for Lehman Brothers, which had 20% of the company as of 2005.

From Portfolio.com:

Crash Landing

Another one bites the dust.

The Ospraie Fund, a commodities hedge fund that was worth $2.8 billion at the start of August, is winding down after suffering a brutal blow during the month. According to a letter to investors from the Ospraie’s founder Dwight Anderson, the fund lost 26.7 percent during August, bringing it to a 38.6 percent loss year-to-date.

“The losses were primarily caused by a substantial sell-off in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past ten to twenty years,” Anderson wrote to investors.

Anderson, 41, got his start in the business working under Julian Robertson at Tiger Management. In 1999, he moved to John Paul Tudor’s hedge fund firm, where he started managing his own fund and in 2004 he spun out Ospraie Management as an independent firm. Anderson didn’t have a losing year until 2006, when his flagship fund lost 19 percent in the first five months of the year. It took another hit in mid-2007 as the credit markets began to freeze.

While this fund’s closing will come as a blow to all of its investors, it comes at an especially bad time for Lehman Brothers, which took a 20 percent stake in Ospraie Management in 2005. One of the ways Lehman has recently tried to raise capital is by seeking a buyer for its asset management business, which would include its stakes in hedge funds as well as its Neuberger Berman unit.

So far, no one has stepped forward with an offer, however. And this news certainly won’t help Lehman’s negotiations on that front, although Lehman also has a 20 percent stake in D.E. Shaw, which is doing exceptionally well during this credit crisis.

The demise of the Ospraie Fund, which was named as an “eclectic spelling of osprey” according to a Bloomberg profile on the firm last year, underscores the extreme volatility in today’s commodities markets.

According to the Bloomberg article from last year, the Ospraie Fund makes long and short investments in commodities such as oil, copper, and corn. It also trades shares of companies in the energy, mining, and agriculture industries. August was a tumultuous month for commodities in general, as their prices plummeted after soaring since the beginning of this year.

Related articles
Ospraie’s Anderson forced to shut flagship – Reuters