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Hedge fund commodity bets soar after Russia’s invasion of Ukraine

Soroban Capital Partners LP, a hedge fund that chooses $ 10 billion in New York’s stock, is one of the biggest winners and has traded at least $ hundreds of millions since February. Macro Fund Castle Hook Partners and Value Investor Pilgrim Global. According to people familiar with the company, the long-standing decline in spending on new product supplies and efforts to limit carbon emissions was a bet that would boost material prices and producer share.

Commodity-focused funds that have made similar bets have posted oversized returns (sometimes around 30% in the first two months of the year) after years of poor performance.

After 10 years of pain, energy has become one of Wall Street’s biggest winners and has been supercharged by Russia’s invasion of Ukraine in the last two weeks. Recently, the S & P 500 Energy sector has surpassed a wide range of indices by the largest difference in data recording. According to Dow Jones Market Data, it dates back 30 years. The energy sector has risen 37% so far this year, while the broader index has fallen 12%. US crude has recently surpassed $ 130 a barrel after a temporary fall. Zero two years before the coronavirus pandemic began.

“We are in the early stages of cross-generational investment opportunities,” abacus founder Eric Mandelbrat wrote in an annual letter to investors dated January 20.

Many of the assets that abacus and other hedge funds have recently scooped up (oil producers, fertilizer makers, commodity futures contracts, etc.) have skyrocketed as the war has disrupted already tight markets.

Russia accounts for more than 10% of the world’s oil, natural gas and wheat supply and is also the main source of potash to fertilize crops around the world. Ukraine is also a major exporter of agricultural products.

Russia is a major producer of fertilizers and has a phosphate business in Cherepovets, Russia.


Photo:

Andrey Rudakov / Bloomberg News

According to traders, the replacement of materials excluded from the global market by sanctions, export bans and the war itself has been difficult, and after years of declining capital spending, reserves have diminished and new large-scale projects Authorization and development can take years.

Commodity prices plummeted in the turmoil. The price of industrial metallic nickel on Tuesday doubled to a record high in just a few hours on Tuesday, turbocharged by a short squeeze that forced Chinese producers to lift their bets on price declines. Aluminum, like wheat, recently set a record.

Few people have made as big a bet on their products as Mandelbrat, who began his Wall Street career in the 1990s as an energy analyst at Goldman Sachs Group Inc. Abacus has benefited from energy and material bets for several years since its inception in 2010, but hedge funds have been suspended for years from this sector as oversupply has pushed commodity prices down.

That changed last year when soaring European natural gas prices caught the attention of Mandelbrat. The limited capacity of renewable energy has forced many companies to return to coal, emphasizing that the world is dependent on fossil fuels, despite green energy ambitions. In addition, by putting pressure on companies to limit emissions, new product projects are less likely to move forward, Mandelbrat told investors.

At the same time, Abacus believed that the shift to clean energy would lead to a surge in demand for metals such as copper, nickel and aluminum, which are components of electric vehicles and solar projects.

Abacus had more than $ 3 billion in deals earlier this year, from lack of exposure to its flagship hedge fund products at the end of September, people familiar with the company said.The majority of commodity-related investments include Canadian natural resources, which are oil producers. Ltd

And Suncor Energy Ltd,

Mining company Vale SA,

And fertilizer maker mosaic Ltd

And Nutrien Ltd

According to the submission to the regulatory agency.

Currently, commodity prices are skyrocketing, but the prices that investors pay in the open market for commodities such as coffee, copper, and corn have little to do with the prices that customers pay in stores. WSJ’s Dion Rabouin explains. Illustration: Adele Morgan

Profit from the abacus’ $ 10 billion main fund transaction offset losses from betting on the stocks of fast-growing companies for the year to February, people familiar with the company said. -Percentage returns for the month.

Castle Hook, which manages $ 2 billion, and Pilgrim Value, which manages $ 250 million, launched a betting version in 2020. From this year to February, both increased at a double-digit rate.

Commodity recovery is also benefiting a small number of investment companies that are still focused solely on this sector. Houston-based Bison Interest is a $ 50 million hedge fund that invests in small oil and gas producers, and the first two months of the year are commodities producers, according to people familiar with the company. The $ 130 million mutual fund run by Goehring & Rozencwajg Associates LLC, which owns the company, is about that amount this year.

“I don’t think there is a good understanding of the seriousness of the supply-demand mismatch and the possible lifespan of that mismatch,” Bison Chief Investment Officer Josh Young said in an interview.

Write to Juliet Chung (juliet.chung@wsj.com) and Amrith Ramkumar (amrith.ramkumar@wsj.com)

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