New Hires
Much of the cash in the commodity space is being deployed by huge macro funds -- those that try to profit from broad market moves triggered by political or economic events -- which are bolstering their specialist teams as a result. Rokos Capital Management, Balyasny Asset Management and Bluecrest Capital Management have all added commodity traders this year.
Finding the right people isn’t easy though, especially after many banks scaled back or exited commodities trading altogether. Their sell-side desks were previously a key source of hires for hedge funds.
“The toughest thing for us is continuing to find the right talent,” said James Purdie, head of investor relations at Arion Investment Management Ltd., which trades just under $100 million in metals and energy markets. “There’s a lot more competition now.”
With money flooding in, the pressure is now on commodity hedge funds to show they can navigate today’s turbulent markets and avoid the large losses that hobbled the industry in the past. While the old guard were famous for a bold and risky style of trading, some of the biggest funds today employ strategies aimed more at delivering reliably strong returns, even during choppy markets and harsh industry downturns.
So far, the top tier haven’t stumbled. The largest 15 commodity hedge funds have posted gains of 10.5% this year, following two years of returns above 20%, according to Bridge Alternatives.
Citadel, Millennium
The hedge fund industry has also changed markedly, with giant firms like Citadel and Millennium Management -- which employ hundreds of dispensable traders across many markets -- now dominating the scene. That leaves less space for the kind of star managers who characterized the last commodities supercycle.
For now, new fund launches in the space remain relatively rare, even though there’s plenty of investor cash available to seed them. Eventually that could result in more entrepreneurial money managers going it alone in the hope of becoming this era’s superstars.
“There is a lack of supply of commodity hedge funds,” said Ryan Duncan, managing partner at Bridge Alternatives. “If there is enough demand and there is not enough supply, you will see some groups launch their own vehicles.”
Yet the losses of the past decade are still fresh in the minds of capital allocators who dabbled in commodities. Many gave cash to funds that were vulnerable to large downturns in the market.
“You had investors who seemed be using the wrong playbook,” said Valent’s Tatum. Now “wisdom has been gained within the industry.”