The Merchant Commodity Fund, managed by Doug King and Michael Coleman, cut a third of its staff after two consecutive years of losses during which assets under management slumped almost 90 percent.
The hedge fund cut five jobs last month, including traders and analysts in Singapore and London, Chief Operating Officer Coleman said in an interview. Assets fell to $170 million in January after investors withdrew money, according to Coleman, who’s also chief risk officer. Merchant, set up with $10 million in June 2004, had managed $1.56 billion at the end of 2010.
The struggle at Merchant, which bets on agriculture and energy, reflects an industry trend. Combined assets at more than 400 commodity hedge funds fell 5 percent to $78.9 billion in 2012, the first drop since the 2008 financial crisis, according to New York-based researcher eVestment|HFN. Raw-material hedge funds lost 3.8 percent in 2011 and 2.6 percent in 2012, according to the Newedge Commodity Trading Index.
“It’s very hard for hedge funds that lost a lot of assets to turn things around,” said Richard Johnston, Hong Kong-based Asia head of Albourne Partners Ltd., which advises investors on hedge funds and other alternative investments. “We sometimes respect the people that stay focused and try to win people back. But that can take a long time.”
Merchant declined 7.6 percent last year after a 29.9 percent slump in 2011, according to the December report to investors. Still, the fund has returned 210 percent since June 2004, according to the report. The last 20 percent performance fee was received in early 2011 for the results of the preceding year, Singapore-based Coleman said. That year, the fund returned 27.6 percent.
“We decided to get the headcount to be in line with the assets,” Chief Investment Officer King said from London yesterday, without identifying those who were cut. “We are committed to make it work.” The fund now has two traders left that work with King, he said.
One of the employees affected has been shifted to Coleman and King’s physical-trading unit, RCMA Commodities Asia Pte Ltd., according to Coleman. The number of staff at Merchant peaked at 16 in early 2010, he said. There are now 10 staff.
Commodities as tracked by Standard & Poor’s GSCI Spot Index rose 0.3 percent last year, climbing for a fourth year. Gains were led by wheat and soybeans amid the worst U.S. drought since the 1930s, while coffee, cotton and sugar declined the most. West Texas Intermediate crude oil fell 7.1 percent in 2012, snapping three years of advances.
Merchant’s 2012 losses were primarily from agriculture, followed by energy, according to the December report.
Merchant was reorganized last year after the decline in 2011, which was the first year of losses after seven annual gains. Coleman suspended his trading career to focus on risk, leaving King to trade most of the assets. King described 2011 as an “ugly, ugly year,” and said one goal was to reduce volatility, according to an earlier interview with Bloomberg.
A total of 920 hedge funds of all kinds were closed last year, the largest amount since 2008, according to Singapore-based data provider Eurekahedge Pte. Among them were Pierre Andurand’s $1 billion BlueGold Capital Management LLP, which lost as much as 34 percent in 2011, and Fortress Investment Group LLC’s $500 million commodities fund.
Most of the asset slump at commodity funds last year came from performance-related losses, with the rest from investors taking money out, according to Peter Laurelli, vice president of the research group at eVestment|HFN.