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Ospraie Fund - commodities stocks

2008-09-03

Count of distinct funds: 1
Capital base: $2.8B (in the commodities fund)
Loss: 38.6% loss in 2008 (27% loss in August)

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stories: hedgefund.net, forbes.com

We have decided to list the flagship Ospraie fund (its commodities fund) as "imploded" despite their "voluntary closure, due to the sharpness of the loss. Fund manager Dwight Anderson wrote to investors:

"As the fund's performance deteriorated, we made the decision -- despite continued confidence in the Fund's positions -- to reduce risk and de-lever the portfolio significantly due to concern of incurring even greater potential losses," he added.

Ospraie is one of many funds that did not fare so well in the recent commodities markets turbulence (we would have been surprised if a few big ones did not croak).

Interestingly, this closure adds to Lehman Bros' current woes, as the broker-dealer had acquired a 20% stake in Ospraie in 2005.

Money will be returned as follows:

The $2.8 billion hedge fund will distribute 40% of its client money by the end of the month, with an additional 40% due at year-end.

Some sources report a full return of capital may take up to three years.

The fund had reportedly returned about 15% a year on average since its founding in 1999, until the present episode. Indeed, the current losses serve to lower that average to more like 8%. Not too shabby in absolute terms, but give high returns to hedge fund investors, and you had better not take them away.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.