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Problems at Red Kite spark sharp metals sell off

Red Kite Management, a $1bn metals-trading hedge fund, has suffered losses of up to 15 per cent so far this year - and is now trying to stall investors who might want their cash back, MarketWatch reports, citing documents it has obtained, as well as people familiar with the firm’s performance.

The news sparked heavy falls on the metals markets, with one stressed trader declaring to Reuters: “The market is collapsing.”

Red Kite, run by Michael Farmer, Oskar Lewnowski and David Lilley, has reportedly asked investors in its metals fund to approve an amendment that would require 45 days notice before money can be withdrawn - up from 15 days. The change will mean that investors have to send redemption notices to Red Kite by Feb. 15 to get their money back at the end of the first quarter.

Red Kite’s problems reflect the volatility inherent to commodity markets. Last year, returns generated by the firm’s Compass fund - which bets on metal prices - topped 90 per cent, MarketWatch said. But copper prices have slumped more than 20 per cent since December, with March futures trading at around $2.53 a pound - down from December’s highs of $3.29.
The report had a marked impact in the metals markets on Friday afternoon. In trading on the London Metal Exchange the price of copper fell 6 per cent, while aluminium was down 3 per cent and zinc slumped more than 8 per cent. “Fund liquidation…a lot of stops triggered…a lot of the stuff on the back of the Red Kite news,” another trader told Reuters.

This entry was posted by Stacy-Marie Ishmael on Friday, February 2nd, 2007 at 16:14 and is filed under Capital markets, Hedge funds. Tagged with , . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Feb 04   16:19 Posted by Metals Sell-off: Hedge Funds Overinvested « Market Risk [report]

    […] Feb 4, 2007 in Hedge Funds, Commodities, Asset Bubbles What happens when the hedge funds who bid up prices in global assets start to get investor redemptions because of poor performance? What happens when the leverage unwinds and managers with little experience managing systemic or core market risks are faced with “improbable” risks? Problems at Red Kite spark sharp metals sell offRed Kite Management, a $1bn metals-trading hedge fund, has suffered losses of up to 15 per cent so far this year - and is now trying to stall investors who might want their cash back, MarketWatch reports, citing documents it has obtained, as well as people familiar with the firm’s performance. […]

  2. Feb 03   2:11 Posted by PE [report]

    After Amaranth, now Red Kite. What is amazing is that many hedge funds are still sticking to some dubious one-direction long bets on commodity prices. One would have thought that lesson would have been learnt after the Amaranth fiasco and that Jim Roger’s bullish call on commodities is a long-term one, and short term redeemable funds like Red Kite should modify their strategy accordingly. The other group of funds ticking like a time bomb is private equity now living on a steroidal dose of cheap leverage and thinking it will last forever. With their $20billion funds, annual fees of 2%p.a translate into $200m per annum for the fund managers. What motivation is there to work for returns for investors? Sooner rather than later, someone would repeat the Forstmann Little act and blow up.

  3. Feb 02   22:30 Posted by larry macdonald [report]

    A run on the banks turned a recession into a depression in the 1930s; will a run on hedge funds take its place in triggering a major financial dislocation before the 2000s are out?

    http://blogs.canadianbusiness.com/advansis/?mod=for&act=dis&eid=1

  4. Feb 02   19:23 Posted by The Smart Money Report » Blog Archive » Hedge Fund Problems Spark Metal Sell Off [report]

    […] From The Financial Times: Red Kite Management, a $1bn metals-trading hedge fund, has suffered losses of up to 15 per cent so far this year - and is now trying to stall investors who might want their cash back, MarketWatch reports, citing documents it has obtained, as well as people familiar with the firm’s performance. […]

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