Being on the wrong side of wide swings in energy futures appears to have caused the downfall of yet another hedge fund as Ospraie Management LLC reported last Tuesday that it will close its fund after its value fell 38.6% this year, according to a letter to investors. The collapse could have repercussions within the energy industry.
The Ospraie Hedge Fund lost a large percentage because of losing wagers on commodity stocks. The fund lost 26.7% in August alone after a "substantial sell-off in a number of our energy, mining and resource equity holdings," CEO Dwight Anderson wrote in the letter.
Part of Ospraie's problems might be tied to the rapid fall in natural gas futures prices over the last two months. Since a $13.694 high on July 2, front-month natural gas futures have fallen $6.666 to Wednesday's $7.028 low.
Anderson, 41, started the Ospraie Hedge Fund in 1999 when he worked at Tudor Investment Corp., the hedge-fund company run by Paul Tudor Jones. He left Tudor at the end of 2003.
The closing of the Ospraie Hedge Fund, which managed $2.8 billion as of the beginning of August, leaves the firm overseeing three remaining funds with more than $4 billion in assets, down from $9 billion in March.
"I am extremely disappointed with this result and the fund's sudden reversal in performance," Anderson said in his letter. "After nine years of striving to be a good steward of your capital, I am very sorry for this outcome."
Ospraie said it plans to return 40% of the hedge fund's assets to investors by the end of September and another 40% by year-end, according to the letter. The company said it could take up to three years to return the most illiquid 20% of its assets to investors.
According to a recent Securities and Exchange Commission filing, XTO Energy Inc., a natural gas producer engaged in the acquisition, exploitation and development of long-lived oil and gas properties in the United States, was Ospraie's biggest holding, accounting for 13% of its assets.
Calls to XTO Energy for comment were unreturned.
Ospraie Hedge Fund joins the likes of Saracen Energy Partners LP (see NGI, Feb. 18), Amaranth (see NGI, Sept. 25, 2006), Bank of Montreal (see NGI, May 21, 2007; April 30, 2007) and MotherRock (see NGI, Aug. 7, 2006), which all took colossal falls from being on the wrong side of energy markets.
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