Contrary to what one trader told Reuters on Friday, the commodities market is not collapsing – and neither is Red Kite.
Not in the opinion of Philippe Bonnefoy, at least. Mr Bonnefoy is the director of the $2 billion-plus Cedar Fund, a fund of hedge funds that he founded in 2002. He spoke to Alphaville about Red Kite and commodities.
On Red Kite, the $1bn hedge fund that specializes in metals trading. US reports on Friday stated that the fund had sustained heavy losses in January and was trying to stall investors from pulling out, spooking markets in London:
“Players in the market already knew they [Red Kite] were down fairly hard in mid-Janaury, so the reaction on Friday was more of an acceleration of that trend than something entirely new.”
“By the time general hedge funds, and even the specialised financial press hears about [events like] this, typically, the metal trade press and the 50-or-so specialist funds and inside players have been aware of it for three or more weeks.”
“It’s important to remember that in some case, you’ve seen other funds having an equivalent or near-equivalent gain to Red Kite’s losses.”
“In any event, these are guys who were up 190 per cent last year. To see them down 20, 30 per cent is statistically, completely within a normalised scope. It’s very disingenuous to not expect some kind of downturn.”
“Red Kite was more of a random noise than an Amaranth. Remember, Amaranth went from being a diversified hedge fund to an energy play. Red Kite is a big trader in this area, with diversified exposure, so they’re not going to crash.”
“Red Kite had a fantastic year, and now they’re giving some of the profits back. It’s a normal process.”
On commodities, in a year that has seen record highs for copper, zinc and nickel as well as significant downside:
“There’s been a bit of investing euphoria in commodities, to say the least.”
“On the demand side [of commodity prices], when people talk about infinite Chinese demand – I think they’re right. There’s huge demand coming out of the BRICs, particularly China and India. So if you’re in a macro-biased trade and big believer in supply and demand, there’s not a lot of reason to get out.”
“We’re in an elongated bull market that’s nowhere near finished. Historically, markets like this have seen retracements of 70-80 per cent within the context of a bull run. It’s not over yet.”
So that’s a “buy” Mr Bonnefoy?