Nov. 12 (Bloomberg) -- T. Boone Pickens, the billionaire oil trader who predicted crude's rise to $100 a barrel, is lagging behind commodity-index investors for the first time since 2003.

Even California Public Employees' Retirement System, the 75-year-old pension fund that ignored commodities until eight months ago, is beating Pickens. Calpers invested in the Standard & Poor's GSCI Index, up 32 percent this year, while Pickens's BP Capital fund rose 22 percent.

From Dwight Anderson's Ospraie Management LLC to Global Advisors LP, commodities hedge funds failed to anticipate the 58 percent advance in oil and 31 percent gain in gold that powered indexes to their highest levels in two decades. While bullish forecasters at Goldman Sachs Group Inc. and Deutsche Bank AG advised clients to double down on commodities in January, they didn't expect this year's returns.

``The commodities game has changed, and funds that have been around for a while were previously trading in markets that were less populated by other players,'' said Aoifinn Devitt, founder of Clontarf Capital, a London-based consulting firm that advises on investing in so-called alternative assets, such as hedge funds. ``Now they have less of an edge.''

The Deutsche Bank Liquid Index, the best-performing commodity index, returned 35 percent through October. Hedge funds globally in that time earned 12.3 percent, according to Chicago-based Hedge Fund Research Inc. The Standard & Poor's 500 Index of stocks appreciated 9.2 percent and U.S. Treasuries 6.6 percent, according to Merrill Lynch & Co. indexes.

Index Growth

The commodity indexes follow a range of futures contracts, from copper to cattle, and profit when prices rise and lose when they fall. Investors have about $130 billion in funds that track commodity indexes, up from $100 billion last year and $75 billion in 2005, according to S&P. The company doesn't disclose its index fees, spokesman Mark Tierney said.

Commodity hedge funds, which typically charge about 2 percent of assets and take 20 percent of profits, bet on both rising and falling prices. Hedge funds are private, largely unregulated pools of capital.

``I'd be more troubled if these guys were all up 35 percent as they would be nothing more than a bunch of index-huggers,'' said David Krein, president of New York-based DTB Capital, which advises clients on investing in hedge funds. ``Their hands would be shown if they had identical performances to the indexes.''

Pickens started as a geologist in 1951 at Phillips Petroleum Co., now part of ConocoPhillips. His Dallas-based fund gained 348 percent in 2005, its best year, and 79 percent last year. Pickens, who manages about $5 billion, declined through spokesman Jay Rosser to be interviewed for this story. The fund's results before 2004 weren't available.

Hedge Fund Growth

Commodity hedge funds oversee about $55 billion, up from $30 billion last year and $14 billion two years ago, according to Chicago-based Cole Partners Asset Management LLC, an investor in the funds.

Among the few companies outperforming market indexes is Touradji Capital Management LP's flagship fund for commodities, which gained 45 percent this year before fees, according to a person with knowledge of the firm. Touradji Capital in New York manages more than $3 billion and was founded in 2005 by Paul Touradji, 36, a former commodities trader at Julian Robertson's Tiger Management LLC hedge fund.

Touradji, who targets gains of more than 20 percent a year, has returned an average 25 percent since the fund started. Shawn Pattison, a company spokesman, declined to comment.

Better Than Hedge Funds

``There are better ways of getting commodities exposure than to throw your money at a hedge fund,'' said Geert Rouwenhorst, a professor at Yale University in New Haven, Connecticut, and a consultant to AIG Financial Products Corp., a sponsor of commodity indexes. ``If you don't have a view on individual markets or the ability to pick winners, then an index is a profitable way of getting exposure to commodities.''

This year's rally in commodities follows a 15 percent loss from the S&P GSCI in 2006, its first annual decline in five years. Calpers, the largest U.S. public retirement plan, invested $450 million in the index this year. Hermes Pensions Management Ltd., the biggest U.K. pension plan, invested 1 billion pounds ($2.1 billion) in 2006.

``We're pleased with the performance of our commodities pilot program,'' said Clark McKinley, a spokesman for the $250 billion Calpers fund. ``This is a promising way of generating above-benchmark returns and diversifying our portfolio against risk. Commodities also may help us as we move into bigger infrastructure investments.''

Surprising Goldman

New York-based Goldman Sachs, the world's biggest securities firm, in January anticipated only an 8.1 percent return this year from the index, not the 32 percent through Nov. 9. Frankfurt-based Deutsche Bank had forecast its commodity index would be unchanged. Instead it jumped 37 percent.

The indexes may continue to rise in 2008 because of gains in crude oil, said Frederic Lasserre, the head of commodities research at Societe Generale SA in Paris.

``If there's no supply surplus from the Organization of Petroleum Exporting Countries, then indexes are likely to perform well again,'' he said. ``The performance of oil, given its large weighting in most indexes, will make all the difference.''

Oil rose to a record $98.62 a barrel in New York on Nov. 7.

The rally provided only a small boost to Proxima Alpha Investments LLC's $550 million Anglian Commodities Fund, run by Julian Barrowcliffe, 45, a former Bank of America energy trader. He returned about 13 percent through October, according to an investor. Melissa Daly, a spokeswoman for the fund, wouldn't comment.

Trailing Indexes

Some hedge funds failed to match even the lowest gains among the 13 indexes tracked by Bloomberg, the 15.4 percent return from the Dow Jones AIG Commodity Index.

Valhalla Capital Advisors LLC, a $660 million commodities fund in New Jersey, returned about 2.4 percent through Oct. 22, an investor said. The firm was founded by Bryan Fiedler, who previously managed the U.S. London Metal Exchange desk at Refco Inc. Stephanie Sirota, a Valhalla spokeswoman, declined to comment.

Black River Asset Management LLC's $2 billion Commodity Multi-Strategy Fund returned 6 percent through October, according to a person with knowledge of the result. Lisa Clemens, a spokeswoman for Minneapolis-based Black River, part of Cargill Inc., declined to comment.

Losses became so bad this year that investor demands for cash forced the shutdown of two funds at Global Advisors in London and New York, co-founded by Daniel Masters, 44, JPMorgan Chase & Co.'s former head of energy trading.

`Don't Last Forever'

Hedge funds will justify their fees once the bull market across commodity markets ends, said Michael Nassif, president of Geneva-based Calibria Financial Services SA, which invests in hedge funds.

``Bull markets don't last forever and there are periods of volatility, which is when the value of a hedge-fund manager shines,'' Nassif said.

The $3.6 billion Ospraie Fund run by Anderson, 40, gained about 10.5 percent through October, according to investors. Anderson invests about half of the fund in shares of natural resource and industrial companies and the remainder in commodity futures.

The Ospraie fund returned an annual average of 15 percent since starting in 1999. Jonathan Gasthalter, a spokesman for the New York-based fund, declined to comment.

``It's unfair to measure the performance of these funds against an index or against one another,'' said Kevin Arenson, head of asset management at London-based Stenham, which invests about $2.5 billion in hedge funds. ``Many of these funds are long-term investors and it takes time for their investment thesis to play out. They also have very different strategies and are trading in different markets.''

To contact the reporter on this story: Saijel Kishan in London at skishan@bloomberg.net

Last Updated: November 11, 2007 21:04 EST