In Oil, a Trader Stands Out by Surviving
Pierre Andurand’s fund has been one of only a handful to correctly call oil-price moves as many peers shut down
A day after oil prices plunged to a 13-year low in January, Pierre Andurand, a French hedge-fund manager who made millions betting against crude, started buying.
For the former Goldman Sachs energy trader, one of the last commodity hedge-fund traders left standing in an oil slump littered with casualties, it was the first bet on rising prices since 2014.
So far, his timing has proved correct. Despite investors’ widespread fears of a persistent crude glut, the price of international benchmark, Brent, has rallied close to 40% since Mr. Andurand’s call on Jan. 21.
“I started to have a lot of signals showing the market may be turning” from mid-December, Mr. Andurand, a kickboxing devotee with a reputation for aggressive trades, said in a recent interview at his firm’s London offices. In March, he predicted a “multiyear bull run,” according to a letter to investors reviewed by The Wall Street Journal.
Andurand Capital Management LLP, set up three years ago from the ashes of $2.4 billion hedge fund BlueGold Capital Management LP, has been one of only a handful of funds globally to correctly call moves in the price of oil since the summer of 2014, when crude began its marked slump.
Having bet against oil in September 2014, Mr. Andurand’s fledgling fund gained almost 60%—a profit of $160 million—in four months as the price of oil almost halved. Hedge funds on average gained 0.1% over that period, according to Hedge Fund Research. So far this year, Andurand’s $710 million fund is up 5.8%.
In contrast, the sharp downturn in commodity prices in recent years has left many mining and energy companies strapped for cash, forcing hedge funds run by firms including Clive Capital, Centaurus Capital and Brevan Howard to shut down.
Big names including Andrew Hall’s Astenbeck Capital notched big losses last year due to an overly bullish stance, while funds run by Brigade Capital Management and King Street Capital Management lost money after investing in oil firms’ debt too early last year.
Mr. Andurand started betting against oil in late September 2014 because he had become concerned about sluggish global oil demand and burgeoning supply from the U.S. and Libya.
Two months later, the Organization of the Petroleum Exporting Countries surprised the market by refusing to cut its output as it had in previous episodes of oversupply. The result of that meeting was “so clear a confirmation” of Mr. Andurand’s views that he raised his position.
“We had to increase relatively fast because we knew it would be a catalyst for a price move,” he said. However, memories of past losses kept his position below the maximum he could run.
“I had very high conviction level, but I got burned a few times a few years before, so I was still a little cautious,” said Mr. Andurand, whose BlueGold fund chalked up huge gains during the credit crisis before folding after large losses in 2011.
His new fund returned 38% in 2014, ranking it as one of the world’s top-performing hedge funds, thanks to the bet on falling oil prices.
Last year proved harder. Despite being correctly positioned—oil dropped 35% during 2015—Mr. Andurand was hit by sharp bear-market rallies, particularly in April. “The fundamental view was right, but it was difficult to generate really high returns from it” without risking big losses, he said.
It was sticking with the position, rather than the size of the bet, that made the money, he said. Last year’s more modest 4% return beat hedge funds’ average 1.1% loss, according to HFR.
Mr. Andurand’s decision to flip his bets and start buying this year was based on his view that prices have fallen enough to induce falling supply. Oil prices still are down close to 70% from the summer of 2014, pushed down by an oversupply of crude around the globe.
In recent weeks, oil prices also have been supported by hopes that major producers will agree to limit their output. Around a dozen oil-producing countries, including Saudi Arabia and Russia, will meet on April 17 to discuss a deal to freeze their output at January levels, though some analysts are skeptical that the producers will reach an agreement.
Mr. Andurand doesn’t think that such limits are needed.
“You have 3.5% of world oil supply that is forever below cash cost,” he said. “We see production declines already coming from a lot of countries—U.S. output is falling, but also China, Azerbaijan, Kazakhstan, Mexico….”
Mr. Andurand prefers to form such trading views in the silence of his own office—fitted with an ivory leather couch and floor-to-ceiling windows that look out onto luxury department store Harrods—by reading reams of analysis, rather than amid the chatter of peers. Guests enter the trading floor between two large fish tanks, designed to add a calming influence.
“I need to be really quiet,” he said. “In order to be an independent thinker, you should not speak to too many people.”
He also is the final decision maker on the fund. “I don’t need other people agreeing with the view,” he said, adding that the fund’s risk limits help protect against losses. “Sometimes it will be too late before everybody agrees.”
Mr. Andurand, 39 years old, was born in France but spent six years growing up on the small French island of Reunion off the coast of Madagascar, because his father, a civil servant who bought guidance equipment for planes, wanted to live somewhere with better weather.
Mr. Andurand began trading energy for Goldman Sachs Group Inc. in Singapore, when the oil price wasn’t far from today’s levels. He moved to Bank of America Corp. and then Vitol Group, the world’s biggest independent oil trader, which transferred him to London.
It was there that he branched out, co-founding BlueGold Capital with trader Dennis Crema. The fund began trading in February 2008, shortly before the financial crisis took hold. The fund made more than 30% in February alone and a staggering 209% that year, after betting against oil in the final four months of the year, as Lehman Brothers collapsed and oil plunged 60%. They then flipped the bet just as oil was starting a long recovery.
But the venture didn’t end well. BlueGold shut down in 2012 after losing more than one-third the previous year, including a 23% loss in May 2011 alone, as its bullish bets were hit by falling prices. Mr. Andurand said the closure was unrelated to the losses and instead due to his desire to part ways with his partner.
At the time, Mr. Andurand also veered off into investing in equities, a move questioned by some investors. This time around, the fund has stuck to trading oil.