Biggest Commodity Hedge Fund Loses $400 Million in Oil Slide

Clive Capital, the world’s largest commodity hedge fund, has been left nursing losses of more than $400m as a result of the dramatic collapse in the price of oil last week.

London-based Clive – which manages an estimated $5 billion of client money – is the biggest of several big hedge funds believed to be reeling after the unexpected sell-off hit markets late last week.

Others, including Astenbeck Capital, the Phibro-owned fund run by Andrew Hall, are thought to have taken double-digit percentage point losses to their portfolios, according to investors.

The scale of the losses demonstrates that even the savviest investors in commodities were wrongfooted by the correction, one of the sharpest one-day falls on record.

In a letter sent to investors on Friday and seen by the Financial Times, Clive said it was down 8.9 percent on the week after what it called “extraordinary” price movements on Thursday. Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”.

“The move in Brent represented about a 5 standard deviation move, while WTI was a 4 standard deviation move,” Clive said in its letter. A five standard deviation daily move is a exceptionally rare event.

“Economic data was soft early in the week though micro news for oil continued to be bullish. Indeed there was news out earlier in the week of further supply disruptions in Yemen and a substantial technical supply outage in the UAE,” the fund said.

While several fund managers had been slowly positioning themselves for a correction, the speed and scale of the event caught most – including Clive – off-guard. At its low of $105.15 a barrel on Friday, benchmark Brent crude oil had dropped more than $16 in two days.

Thursday’s sell-off was started by retail and non-traditional investors taking profits – a move which triggered automatic selling from quantitative funds and precipitated a rout. The correction means Clive is now slightly down on the year, after strong performance over the first four months to April.

Most managers remain bullish, however, and expect commodity prices to continue to rise. “Physical markets are quite strong,” said Clive in its letter. “We remain positioned in a number of markets.”

Commodity hedge funds are used to volatile portfolio moves. In spite of similar historical setbacks, Clive has a record of returning, on average, 27 percent on investors’ capital a year.

The fund manager was set up in 2007 by Chris Levett, a former trader at Moore Capital, the global-macro hedge fund run by Louis Bacon.

Clive Capital and Astenbeck did not respond to requests for comment.