According to agency reports, the hedge fund Red Kite lost roughly 20% of its $1 bn fund since the beginning of the year up to January 24, ‘07.
Investors began to withdraw their money in panic causing the market to crash, as they feared a repeat of the Amaranth debacle. US-based hedge fund Amaranth Advisors had lost close to $6.6 bn in September ‘06 after poor bets on natural gas on Nymex.
Hedge fund Red Kite, which posted strong gains in 2006, has suffered a roughly 20 percent loss in the first days of January and is now trying to stall investors who want to pull money out, The Wall Street Journal reported.
Citing one unnamed investor who saw an unofficial estimate of the 2-year-old London-based hedge fund's performance in the first few weeks of January, the newspaper wrote that the fund lost about 20 percent for the year.
Red Kite specializes in metals trading.
The newspaper also said the fund had asked investors to approve an amendment that would require investors to give 45 days notice before pulling their money out. Previously they were able to get their money out at the end of each quarter after giving only 15 days notice.
From the Chicago Tribune:
"The fear is that it's an Amaranth," said Michael Guido, director of hedge-fund marketing at Societe Genearle SA in New York referring to Amaranth Advisers LLP, the hedge fund that lost $6.6 billion last year on natural-gas trades.
The commodities markets have become the high-tech stock market of the early 2000s -- a market ripe with speculation. The number of commodities advisers etc... has ballooned over the last 6 years. This is one of the reasons why the commodities markets have moved a great deal higher. There are also strong fundamental reasons for the increase, largely related to the growth of China and India.
One of the main problems with hedge funds is they fly below the investment radar and they are large enough to impact markets. Because there are no reporting requirements, stories of their problems quickly take-on rumor related reporting issues which is not good for anyone.