Andrew J. Hall, the oil trader whose $100 million compensation while at Citigroup Inc. ignited controversy in 2009 over pay packages at bailed-out banks, posted his commodity hedge fund’s biggest annual loss last year.
Astenbeck Capital Management LLC, the $3.5 billion fund company that is 80 percent owned by Hall and 20 percent by Occidental Petroleum Corp., lost 8.3 percent in its main fund, according to an investor letter obtained by Bloomberg News. That loss, the second in the six-year-old fund’s history, was extended in January with a 2.1 percent decline.
Commodity hedge funds, whose profits depend in part on wide swings in prices, are facing a season of pain. The volatility of U.S. crude prices reached a 17-year low in 2013 as a drilling boom in layers of shale rock from Texas to North Dakota boosted inventories and helped guard against supply disruptions, according to data compiled by Bloomberg.
“It’s been a very challenging environment for many commodity shops,” Gianna Bern, a former BP trader and principal at Chicago-based Brookshire Advisory & Research Inc., said today in a telephone interview. “The development of shale in the U.S. has turned the global energy balance 180 degrees.”
Hall, who also runs Occidental’s Phibro LLC trading unit, didn’t return messages left by phone and e-mail seeking comment, nor did Eric Moses, a spokesman for Los Angeles-based Occidental.
A former trader at BP Plc, Hall has been called “God” by competitors because of the prescient sense of oil market movements that he has used in the course of more than 30 years to reap billions for a number of different Phibro owners, according to the 2010 book “Oil” by Tom Bower.
Once known as Philipp Brothers and with origins that date to 1901, Phibro posted quarterly profits 80 percent of the time from 1997 to 2009, when it was bought by Occidental for $250 million. The trading house had annual pretax profit of $371 million in the five years before the purchase from Citigroup, Stephen Chazen, Occidental’s then-chief financial officer, said at the time.
A surge in oil prices in 2008 helped Hall earn about $100 million in compensation. Citigroup then-Chief Executive Officer Vikram Pandit said in September 2009 the payout was too high as regulators scrutinized compensation after the bank’s $45 billion government bailout.
Hedge-fund firms including Higgs Capital Management LLP, co-run by Morgan Stanley veteran Neal Shear, and Clive Capital LLP, founded by ex-Moore Capital Management LP trader Chris Levett, shuttered last year. Billionaire energy trader John Arnold and Fortress Investment Group LLC liquidated funds in 2012.
Hall has been known to wager on the rising price of oil, a position he defended in a series of letters to Astenbeck investors, disputing predictions of falling global demand.
U.S. oil prices averaged $98.05 a barrel last year and have not dipped below an average of $94 since 2010. Similarly, the global crude benchmark, which trades based on prices in the U.K.’s North Sea, has ranged from an average of $107 to $112 since 2011, according to data compiled by Bloomberg.
Astenbeck, which invests in oil, refined products, natural gas, metals and agricultural commodities, gets “differentiated insight” on supply and demand as well as the flow of resources from Phibro’s role as a “substantial player” in physical trading markets. Astenbeck’s cumulative return since its formation in 2008 is 35 percent, net of fees and expenses, according to the letter.
Total assets managed by Astenbeck have fallen from November, when it reported about $4.1 billion, according to an investor letter. The main fund has dropped to $2 billion from $2.4 billion.
Occidental includes Phibro’s earnings in its pipelines and processing business results. Profit from that unit more than doubled the year after the company acquired Phibro, before falling in 2011 and 2012. Earnings rose again in 2013, as Occidental gained $1 billion from its sale of a pipeline stake.
As Occidental continues an effort to restructure after its shares fell for consecutive years in 2011 and 2012, Hall’s performance at Phibro and Astenbeck may hasten calls for the oil producer to part ways with the trader, Fadel Gheit, an analyst at Oppenheimer & Co. in New York, said today in a telephone interview.
“It’s a distraction,” said Gheit, who opposed the purchase from its inception. “This is like somebody who never gambles buying a casino.”