The Secret Club That Runs the World by Attain Capital
Wow, the editor really got carried away with that title. We picked up a copy of Kate Kelly’s (great name) book ‘The Secret Club That Runs the World – Inside the Fraternity of Commodity Traders’ the other day, and after finishing it off – think the title probably should have been something more like: A few traders who took enormously large risks, made fortunes, lost fortunes, and then faded into relative obscurity. But that might not have sold so well.
Beyond the critique of the title, however; this was quite an entertaining read for anyone involved in the commodity futures markets – and especially the energy markets. ‘The Secret Club That Runs the World – Inside the Fraternity of Commodity Traders’ touches a lot of different areas, including profiles on former regulators Bart Chilton and Gary Gensler; the dangers of indexing commodities after a huge run up, and how commodities were the red headed step child at Morgan Stanley.
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But those parts are mostly just filler between the more entertaining sections discussing the incredible ups and downs of Pierre Andurand and his Energy Trading Hedge Fund Blue Gold Capital Management (since closed down), the behind the scenes drama as physical commodity giants Glencore and Xstrata tiptoed around a merger, and the bizarre tale of huge proprietary trading masked as hedging at Delta Airlines.
The Andurand/Blue Crest story is worth the price of admission alone. Andurand is like a characterization of a hedge fund mogul for a movie. There’s his 11 million pound house in London, Goldman Sachs ties, ownership in a kickboxing league, a custom Bugati sports car, Elton John playing at parties, and – of course – the proverbial Russian model for a wife. And then there’s the incredible performance: +209% in 2008, +55% in 2009, and +13% in 2010 as assets under management surpassed $2 Billion; followed by a terrible day in 2011 when the firm lost close to half a billion dollars (in a day!). About 16 months later, the fund shut down and sent home all the money to clients. Past Performance is Not Necessarily Indicative of Future Results.
This quote summed up Andurand (and our amazement on how they could have raised over $2 Billion).
“Everyone knew of Andurand’s appetite for emormous bets – and his reputation for relaxed risk management.”
Andurand has gone on to launch a new firm, Andurand Capital, which reportedly was one of the best performing funds in 2013, but we can’t help but imagine what one of our favorite authors, Nassim Taleb, might say about him. Mr. Taleb might view the performance as little more than the personification of the role luck plays in investment outcomes. He may view Andurand as a human winning lottery ticket – the one trader out of tens of thousands trying to do the same thing who got the sequence of many best just right (although there were some that were notably wrong). All we know is that we’ll keep rooting for the guy, so there’s more stories of mansions, private planes and model wives.
The rest of the story, excepting the regulator parts, is nearly as interesting – especially the stories around Delta Airlines mostly botched attempts at hedging their fuel costs, making for a good quick read that will have you at the very least, feeling a little emasculated over the size of your bets in the energy sector.
“The Managed Futures Blog is a compilation of thoughts, research, attempts at humor, and more from the team at Attain Capital Management (“Attain”). Attain pairs high net worth individuals, RIA’s, and institutional investors with alternative investments in commodities, managed futures, and global macro strategies through privately offered funds and managed accounts. Click here to sign up for their insight and analysis.”