The hedge fund run by oil trading god Andy Hall has gotten hammered by the recent crash in oil prices. Hall’s Astenbeck Capital Management lost a stunning 17% in July. The enormous dive is the second-largest loss the fund has ever experienced since its inception, and the decline cut total assets under management to about $2.8 billion, down approximately $500 million since June. As oil prices collapsed amidst a larger commodity crash , it affected commodity investors everywhere.
Hall, who launched the Astenbeck hedge fund in 2008 while still employed by Citigroup Inc., is best known for being an oil bull. In the past, he has placed huge wagers on rising prices for oil to be delivered well into the future. The risky strategy paid off and earned him enormous returns and paydays, particularly during the commodity boom of the 2000s. When Hall ran Citigroup Inc.’s Phibro LLC commodity trading division, he generated hundreds of millions in profits for the company – and for himself. He negotiated pay packages for himself worth $100 million annually.
In an investor letter dated August 3rd, Hall stated that July was a “brutal” month for commodities. He expressed his confidence in oil over the long term, and said that the dire outlook on oil was not justified. Hall stated that part of the reason commodities have hit such a slump is due to strife in the Middle East. “Saudi Arabia is fighting a proxy war with Iran in neighboring Yemen. It is also facing an existential threat from ISIS which is endeavouring to stir up sectarian unrest in the oil producing east of the country . . . It’s not unreasonable to say that the geopolitical risks in the major oil exporting region have seldom been higher. Yet oil prices currently have little or no risk premium and are – furthermore – below the longer run marginal cost of production. Because of this and given that the underlying fundamentals continue to improve, price risks are skewed to the upside in our view.”
The loss suffered by Astenbeck was not the only loss realized in the industry. Longtime energy investor Daniel Rice III, owner of Rice Energy Inc., suffered a loss of more than 35% last month. The fund is down 41% this year through the end of July, subsequent to a 55% loss in 2014. The 63-year old Rice stated that, “This is exactly what you see at every bottom. It’s a temporary phenomenon. Now whether it’s temporary for three months, six months or a year, [he doesn’t] know.”
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