Carlyle’s Vermillion CTA Loses on Commodity Bets

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Last year, Carlyle Group LP (NASDAQ:CG) added a commodity trading advisor to its growing empire. Carlyle Group LP (NASDAQ:CG) bought a 55 percent stake in Vermillion Asset Management (AUM$2.07 billion) last year. Vermillion’s flagship Viridian Ltd (AUM $1.46 billion) is just doing as well as the commodity focused hedge funds are in the running year. The fund was down 2.5 percent in February, wiping out the +0.96 percent return of January. EurekaHedge CTA/Managed Futures Index was down 1 percent in February, while BAML’s CTA Advisors was down 0.55 percent in the same period.

Viridian incurred losses in precious metals and energy in February while gaining from freight rates. The fund expects profits from the agriculture commodities; however, gains from the sector are hinged at the outlook projected by USDA report, which is due at the end of this month. The managers expect corn and wheat prices to fall for the short term following the USDA report but a recovery is predicted based on favourable weather conditions. Hedge funds are positioned in the crowded short zone in Wheat futures. Wheat declined the most in Feb, down 9 percent.

Hedge Fund Wheat Positions

Prices in the energy sector fell after the events that took place in Eurozone. Viridian expects prices of natural gas to rise further in March as low temperatures are forecasted in this month. The fund lost in its positions in heating oil.

As precious metals declined across the board in February, the fund lost in Gold, Copper and Silver. Viridian was profitable in its base metals holdings. The sector overall is pressured due to reduced demand from China. According to data from CFTC futures, Gold is holding strong in the Buy zone while Silver is nearing the Buy signal. Hedge funds are positioned in the net short zone in copper futures.

Hedge Fund Gold and Silver Positions

CTAs are up 2.85 percent YTD as per BAML’s analysis. The strategy has picked up speed in March, up 2.5 percent MTD until March 13 according to BAML’s hedge fund montior. Large speculators/hedge funds are positioned in the crowded long zone of palladium and heating oil futures for the present and are net short in natural gas, copper and wheat futures.

Carlyle Group has $40.2 billion in assets under management as of Dec 31. The private equity firm experienced a 28 percent decline in EPS and 24 percent decline in revenues in 4Q2012.

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