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By Barani Krishnan
NEW YORK, May 7 (Reuters) - Two-thirds of commodity hedgefunds lost money in the first quarter, extending last year'sdismal run, possibly because they bet against higher crop andenergy prices in a rallying market, data from futures brokerNewedge and banker HSBC showed on Wednesday.
Of some 120 commodity-focused funds in the United States andEurope that either trade on discretion or follow trends, about70 finished lower in the three months through March, despite arun-up in the corn, wheat, soybean, arabica coffee, lean hog andnatural gas markets, the data showed.
That was in contrast to results from investment banks suchas Citigroup Inc, Goldman Sachs Group Inc, MorganStanley and Macquarie Group Ltd, which showedstrong gains from commodities in the first quarter as the firmstraded in or hedged against higher gas prices for their clientsduring a brutal winter. The trading desks of some oil companies,including BP Plc, also reported good returns.
The funds listed by Newedge and HSBC could have missed outon gains by going short on markets as the polar vortex acrossthe United States swept energy, power and grains prices higher.
Some of the funds also had investor redemptions, extendingoutflows last year.
London's Armajaro Commodities Fund, run by Armajaro AssetManagement, had a drop in capital of nearly 25 percent to below$700 million during the first quarter, Newedge's Nelson Reporton alternative investment funds showed.
Krom River Commodity Fund in Baar, Switzerland lost 20percent of its assets, to below $230 million, in the quarter,according to HSBC's HedgeWeekly data.
Both funds confirmed with Reuters they had redemptions.
The woeful performance of the many commodity hedge fundscould alienate investors even as raw materials prices continuerising, analysts said. Thomson Reuters/Core Commodity CRB Index, which tracks 19 commodity markets, rose 9 percentduring the quarter for its best three months since Sept 2012.
"The reality is commodities remain one of the most hatedplaces in the investment space," said Marcus Storr, head ofhedge funds at Feri, an asset manager in Bad Homburg, Germany,managing $24 billion euros of mostly institutional client money.
"In general, since 2012 and through 2013, the commoditieshedge fund space has lost quite a lot of money."
The best performing commodity fund for the first quarter onthe Newedge's Nelson Report was London-based Cumulus Energy, a$490 million discretionary-based fund, which posted a return ofmore than 20 percent. Cumulus, run by City Financial InvestmentCo, declined comment.
The largest commodity fund on the Nelson report, the $1.8billion trend-following Gresham Tangible Asset Program in NewYork, returned nearly 5 percent for the quarter. It was one ofthe few funds that appeared to have asset growth during theperiod, with its capital rising from $1.66 billion in December.
Jon Spencer, president of Gresham Investment Management LLC,confirmed the fund did well, but declined further comment.
On HSBC's Hedge Weekly, the $134 million Merchant CommodityFund, which trades out of London, was the best performingcommodity fund, returning more than 10 percent for the quarter.Merchant gained from being long on natural gas and U.S. crudeoil, and short on coal and U.K. Brent crude, its Singapore-basedrisk manager Michael Coleman told Reuters. (Reporting By Barani Krishnan. Editing by Andre Grenon)
