Commodity hedge funds are finding it harder to make a profit partly because fees and other charges “soured customers,” the Food & Agriculture Organization said.
Customers who besides paying annual fees are now finding themselves “saddled with 100 percent of the losses,” the United Nations agency said today in a report called “Commodity hedge funds in retreat?” The FAO cited commodity index fund investment data showing a 20 percent drop since April 2011, mirroring a withdrawal from hedge funds.
“As with most mature businesses, commodity hedge funds are finding profitability harder to come by,” the FAO said. “The sobering truth about the nature of commodity futures may have re-emerged: they are not investments at all but risk-shifting instruments, always generating a loss for every gain.”
Commodity hedge funds have existed since 1979, and were slow to take off until 2000, according to the report. The 2007-08 food crisis was a money-maker for hedge funds, the FAO said.