By Jeanine Prezioso
NEW YORK, Dec 30 (Reuters) - Commodity hedge fund Higgs Capital Management, founded by two former bank commodity executives, will wind down and return money to investors as it faces headwinds raising money, joining other commodity funds that closed this year.
The fund will return investor money and will wind down in an "orderly fashion," its founders, Neal Shear and Jean Bourlot said in a note to investors on Monday. Higgs managed some $250 million and invested in energy, metals and agriculture markets, Shear told Reuters.
"Over the life of the fund we made money," he said. "Our closing is largely a factor of redemptions that are happening in the commodity market and lack of stability of our capital."
The fund could have continued to manage money into next year but would have had to cut expenses and restructure the fund, the pair said in the note. This would result in having to change the product it had initially marketed to its clients as well as its "strong risk management culture."
"These changes would have handicapped our performance going forward which would have been detrimental to existing investors and employees."
Shear and Bourlot are long-time commodity traders. Shear spent 25 years at Morgan Stanley where he helped build the firm's commodity trading business until his departure in 2008. He joined UBS in 2010 for a short time after working for more than a year at private equity fund Apollo Global Management.
Bourlot headed agriculture trading at Morgan Stanley before he moved to UBS as global head of commodities. He departed at the end of 2011 after about 18 months.
The pair left UBS to start Higgs, which was based in London.
It has been a tough year for the commodity investment community as a whole.
Banks faced unprecedented regulatory requirements and hedge fund investors sought to redeem capital from underperforming funds. Low volatility has plagued markets, adding to sluggish returns.
Hedge Fund Research Inc, which tracks funds' performance, said losses in commodities have forced its HFRI Macro Index down 2 percent through the third quarter.
London-based commodity fund Clive Capital, which primarily traded oil, announced it was closing in September, citing a lack of investment opportunities. That same month, commodity fund Arbalet Capital, run by 30-year-old Jennifer Fan, announced it was shutting, citing investor redemptions after slack returns.
Large banks, once active and profitable in the sector, announced this year they would sell off physical commodity businesses, pressured by the U.S. Federal Reserve.
Two weeks ago, Morgan Stanley announced it would sell its global physical oil trading business to Russian oil giant Rosneft, after much conjecture throughout the year of what the bank might do with the business in the face of declining returns.
In July, JPMorgan Chase & Co said it would exit its physical commodities business, due to regulatory pressure.
Earlier this month, Deutsche Bank said it would close its global commodities trading business and cut some 200 jobs as it faced increased regulatory scrutiny and pressure to hold onto capital.
- Investment & Company Information
- Morgan Stanley
- commodity trading