RK Capital Management LLP plans to introduce a hedge fund that will bet only on rising metals prices, with a goal of raising as much as $1 billion.
The Red Kite Real Return Fund Ltd. will invest in industrial and precious metals and will appeal to investors who look at returns over six to 12 months, David Lilley, co-founder of RK Capital Management, said in an interview in Lausanne, Switzerland, today. The London-based fund will start June 1 and may close to new investors should it reach its maximum target, he said.
“There are some positive stories out there, but it’s not a one-way bet on all metals,” Lilley said, adding that declines for aluminum, zinc and tin may be limited because of production costs. “It should be a good environment for a discretionary long-only fund.”
The London Metal Exchange Index of the six main metals more than tripled in a decade as demand from emerging markets led by China overwhelmed supply from mines. The gauge is up 4.3 percent this year after a 22 percent drop in 2011.
RK Capital Management specializes in buying and selling copper and has more than $1 billion under management. It prospered by betting that copper would fall in 2011 as the pace of construction in China slowed, investors say. Trading on the LME rose 33 percent to $15.4 trillion of contracts last year.
The new fund will be run by the current RK Capital Management team and will aim to outperform the Standard & Poor’s GSCI Precious Metals Index Total Return and a similar gauge of industrial metals. It will also target surpassing gains in platinum, palladium and tin, Lilley said.
Industrial metals are likely to remain “range-bound” for now as an economic recovery in the U.S. is balanced by slower growth in China, the biggest consumer, according to Lilley. Red Kite is positive on platinum and palladium because of rising automotive demand amid supply constraints, Lilley said. Gold’s outperformance may be coming to an end as the dollar strengthens and investors reduce bullion holdings to buy equities, he said.
The company’s $400 million Red Kite Compass Fund topped Bloomberg Markets’ ranking of midsize hedge funds for the first 10 months of 2011, with a return of 47 percent, according to investors. The $200 million Red Kite Metals Fund rose 34 percent and the $100 million Red Kite Prospect Fund surged 50 percent, clients say.
The S&P GSCI precious-metals index is up 5.5 percent this year after gaining 6.6 percent in 2011, an 11th annual advance. Platinum for immediate delivery has risen 11 percent and palladium is up 2.8 percent. Tin for three-month delivery on the LME has gained 13 percent this year, the most among the six main industrial metals traded on the exchange.
RK Capital Management earned a net 116.2 million pounds ($180 million) from 2006 to 2010. Lilley and co-founder Michael Farmer also trade copper on the physical market.
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