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Oil Trader Andrew Hall Is Closing His Astenbeck Hedge Fund Hall bet heavily that OPEC's moves would help rebalance the oil market and lift energy prices Sider, Alison; Copeland, Rob. Wall Street Journal (Online); New York, N.Y. [New York, N.Y]03 Aug 2017: n/a. https://www.wsj.com/articles/oil-trader-andrew-hall-is-closing-his-astenbeck-hedge-fund-1501776384 Andrew Hall, a legendary trader who made billions betting on oil's rise, is shutting down his hedge fund after he misjudged the impact of a boom in U.S. production that upended the market. Mr. Hall, who gained wide notice for fighting over a $100 million payout from his former employer Citigroup Inc. during the depths of the financial crisis, confirmed Thursday that he is closing the main fund at the firm he founded, Astenbeck Capital Management LLC. The decision to close the fund follows years of investor defections and marks the latest reckoning for a Wall Street trader who struck out on his own. Mr. Hall, 66 years old, is known for making big, long-term bets on rising oil prices, a strategy that worked well when commodities were soaring but has fared poorly as prices deteriorated in the past three years. His bullish stance on oil ran headlong into the shale revolution, which in the past decade defied predictions that the world would soon run out of easily accessible crude. Mr. Hall, who left Citigroup in 2009, declined to comment on the timing or reason for his fund's shutdown. Bloomberg reported the news earlier. One point of pressure recently: Blackstone Group LP, one of Astenbeck's first and largest investors, arranged to pull its clients' money from the main fund, people familiar with the matter said. Mr. Hall will continue to manage some Blackstone money outside of the fund now closing, one of the people said. Astenbeck's unwinding is the latest in what has been an escalating series of stumbles for Wall Street traders who created multibillion-dollar hedge funds off their reputations as big bettors at major investment banks. Ex-Goldman Sachs Group trader Richard Perry, who made more than $1 billion for clients betting against subprime mortgages during the financial crisis, closed his eponymous hedge fund last year after a stretch of muted returns. Eric Mindich, the youngest partner in Goldman Sachs history, this spring closed his Eton Park Capital Management. Mr. Hall was one of the biggest names of the era who remained in the game, but even he was overseeing a diminished empire at the end. Astenbeck was down to $1.8 billion firmwide as of May, an investor document indicates, less than half of what the firm managed in 2013. Most of that was in the main fund, which is now being unwound. The main fund lost 17% through April this year, after returning 26% in 2016 and losing 36% in 2015, according to the investor document. Since its inception in January 2008 through April 30, Astenbeck returned 1.65% after fees, the document shows. The oil and commodities sectors once lured hedge-fund managers, who profited from soaring prices in the years before the global financial crisis. Now few such specialists remain. Pierre Andurand's Andurand Capital Management LLP made 38% in its Andurand Commodities fund in 2014. But this year it is down 15% through July, said a person who had seen the numbers. "Ten years of a commodity bull market are over, and that has been lost on a lot of people," said Ernest Scalamandre, managing member of AC Investment Management, which manages about $750 million in assets, primarily investments in commodities and commodity hedge funds. "Technology is decreasing the cost of production." Banks have also scaled back in the markets amid regulatory scrutiny. Deutsche Bank AG, Credit Suisse Group AG, Morgan Stanley and J.P. Morgan Chase & Co. all have closed or curtailed operations in the sector, while Goldman Sachs reported last month its worst-ever quarter for commodities trading. Mr. Hall was among those who bet heavily this year that efforts by the Organization of the Petroleum Exporting Countries and its allies would help rebalance the oil market and lift prices. But oil prices tumbled in the first half of this year. Many began to doubt that OPEC's strategy was working, and fled bets on rising oil prices . Still, Mr. Hall assured investors that the oil glut that weighed on the market would be eliminated, according to people familiar with the matter. "We must confess to a high degree of frustration ourselves," Mr. Hall wrote to investors in May. Since the oil downturn began in 2014, Mr. Hall has remained steadfast in his belief that the glut wouldn't last. In February 2016, he predicted "rapid reductions in inventories" and "a sustained rise in prices" to a range of $60 to $80 a barrel. Mr. Hall has been trading oil for decades. He began his career at BP PLC during the oil crisis in the 1970s and eventually became known for his aggressive tactics, according to the 2010 book "Oil: Money, Politics, and Power in the 21st Century." Phibro, a commodity -trading firm, recruited and hired him in the 1980s. "He was a powerhouse," said Gary Ross, global head of oil at PIRA Energy, a unit of S&P Global Platts. "He's incredibly smart. He reads everything. He does thorough, comprehensive analysis."At Citigroup, Mr. Hall bet heavily on long-term futures and options that paid off handsomely as oil prices surged past $100 a barrel, eventually rising above $145. The Wall Street Journal reported in 2009 that Mr. Hall owned a nearly 1,000-year-old castle in Germany that had his contemporary art collection on display. For a time, the lawn of his home in Southport, Conn., featured an 80-foot-long concrete sculpture; he was eventually forced to remove it after a legal battle with neighbors. Around 2003, Mr. Hall became convinced that oil prices were poised to break out of their longtime range of $10 to $30 a barrel as supply growth lagged behind rising demand. He bought contracts to deliver oil years in the future, which resulted in a big payday when oil prices rose. As for the compensation controversy a few years later, the public outcry spurred Citigroup, a recipient of a federal bailout, to sell Phibro to Occidental Petroleum Corp. in 2009. Laurence Fletcher contributed to this article. Write to Alison Sider at alison.sider@wsj.com and Rob Copeland at rob.copeland@wsj.com |
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