After less than two years of operation, word on the trading floor of the New York Mercantile Exchange (Nymex) Thursday was that energy hedge fund MotherRock LP is closing its doors following large natural gas trading losses over the past two months.

The fund was founded by former Nymex President J. Robert “Bo” Collins, former Nymex vice president of strategy John D’Agostino and former Nymex trader Conrad Goerl in late 2004 and began operations in 2005 with great fanfare.

The company refused to comment Thursday afternoon when reached at its offices in New York.

In response to MotherRock’s difficulties, Nymex issued a statement Thursday afternoon. “All Nymex clearing members are in good standing and meeting all obligations to the clearinghouse. Nymex is working closely with clearing firms, handling the account, and cooperating with our regulator, the Commodity Futures Trading Commission,” the exchange said.

According to one floor trader, MotherRock informed investors Thursday morning by letter that the fund was closing up shop following significant losses in natural gas trading in both June and July.

According to Dow Jones, which obtained a copy of the letter, Collins told investors, “Let me say upfront that I regret MotherRock’s terrible performance and its impact on your investments. We fully understand the implications of this drawdown. Our primary concern at this point is to protect investors’ remaining capital. We are in the process of developing a detailed plan for winding down the fund.”

One Northeast broker contacted by NGI said he wasn’t really surprised by the news. “I’ve heard that MotherRock has been pretty bearish recently, and this latest jump in prices really caught them on the chin,” the broker said. The September natural gas futures contract has been volatile of late, trading in a wide range due to the recent heat wave and tropical storm concerns. The prompt month recorded a low of $6.950 on Friday July 28 and reached as high as $8.545 on Tuesday Aug. 2, creating a range of $1.5965 over the course of three trading days.

The broker said he also heard that the fund was making a market in the Nymex Clearport traded 2,500 MMBtu Henry Hub swap, which has exhibited strong volume and high liquidity since its inception.

“Traders were drawn to this Henry Hub swap because, with a volume of just 2,500 MMBtus, it was a quarter of the size of a standard Henry Hub contract and therefore required less credit or margin to trade,” he said. “They started as a market-maker, but it looks like they got emotional about the market and took on a view. You can’t be a market-maker and have a view. You have to be unemotional about the market and utilize sound money and risk management strategies. In this case they got bearish on the market and the last week was just too much for them to handle.”

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