The quickest way to manage $1 Billion: start with $5 B

The news today is of a supposed shining star of commodity trading closing up shop, with Clive Capital (managing over $5B AUM at one point) having sent a letter to their clients explaining its “long volatility approach,” didn’t allow for many opportunities in this current market environment, and therefore would be shutting down.  That’s a far cry from when the firm was dubbed an overnight sensation – per the FT:

“Soon after its launch in 2008 by Chris Levett, a former star trader at Moore Capital, Clive carved a name for itself as one of the savviest commodity investors in the world. It was dubbed an “overnight sensation” by one trade magazine and rapidly pulled in money from clients eager to profit from a then-booming commodity cycle.”

Now, we don’t usually hear of Clive Capital in the managed futures arena… with their branding being more of a ‘commodity hedge fund’. They aren’t in the BarclayHedge database, for example, or part of many of the managed futures indices – despite being long/short commodity traders. But it’s not every day you shut down with $1 Billion under management – a number many small CTAs would give their left arm for. I suppose it’s different when you are hitting the $1 Billion mark on the way down from $5 Billion, and looking at a 3rd straight year of losses.

What’s likely going on here is one of the less appealing sides (yet they have so many) of the hedge fund business, where it is more profitable for a manager to shut down an underperforming fund and switch to a new one or go to work elsewhere with the possibility of earning a percent of future profits, versus earning back lost capital for investors and earning your fees once new high water marks are hit. Indeed, Clive themselves seem to say the timing of when a good environment for them will return was a contributing factor:

“It is unclear as to when a heightened opportunity environment will return in commodities, although ultimately, it most certainly will,” Clive added.”

Clive is the firm which had one of the most public trading losses we can recall back in 2011, when they lost more than $400M in a week, good for a loss of about -9%, when Crude Oil prices tumbled unexpectedly (in a 5 standard deviation daily move). Perhaps that was a sign of things to come? Of more difficult times ahead?

“Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”.

Clive’s letter said: “The move in Brent represented about a 5 standard deviation move, while WTI was a 4 standard deviation move”. A five standard deviation daily move is an exceptionally rare event.”

In the end – don’t feel too sorry for Clive head man Levett though – he reportedly took home $136.8 Million in 2010 …. and he’s now got more time to spend with his lovely wife…before starting his next fund.

Chris LevettPhoto Courtesy: Bloomberg

Write a Comment

The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.