INTERNATIONAL

August 21, 2006

Gary M. Vasey, Ph.D.
Vice President, Macroenergy Analysis

The closure of MotherRock, a high profile commodity trading hedge fund, has had the wires and rumor mills buzzing these last two weeks with rumors also rife of more mortally wounded commodity trading funds yet to declare their hand. MotherRock gained its profile largely as a result of its founder’s reputation—Bo Collins is the former Nymex President. In 2005, the fund returned a respectable 20 percent or so after fees to investors, but then lost 23 percent in the first half of this year with most losses occurring in the month of June. It also had significant, but unreported, losses in July. Citing “terrible performance,” the fund wrote to its investors telling them it would be shutting down to protect their remaining assets. In September, 2005 (Energy Prices, Hedge Funds and The Coming Energy Crisis—IssueAlert for September 26, 2005), I also wrote about significant losses that had been incurred by a variety of energy commodity trading hedge funds and investment banks related to natural gas trading. Losses at individual funds and banks at that time were thought to be between $100 million and $1 billion each. I recently met with another commodity focused hedge fund that told me it did not now trade natural gas after it had experienced unexpected losses on its natural gas positions last fall. It said that compared to other commodities, the risk/reward profile for natural gas trading just wasn’t there.

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