Saturday, August 05, 2006
New York Energy Hedge Fund
To Close After Big Natural-Gas Losses
August 4, 2006;
One of the biggest New York hedge funds trading natural-gas futures, MotherRock L.P., is shutting down after suffering big losses in the natural-gas market in June and July.
MotherRock, which at its peak in May managed about $430 million in assets, was formed in early 2005 by former New York Mercantile Exchange President J. Robert "Bo" Collins.
"Let me say upfront that I regret MotherRock's terrible performance and its impact on your investments," Mr. Collins wrote in a letter to investors in his MotherRock Energy Master Fund. "We fully understand the implications of this drawdown. Our primary concern at this point is to protect investors' remaining capital."
"We are in the process of developing a detailed plan for winding down the fund," Mr. Collins, 40 years old, said in the letter, a copy of which was reviewed by Dow Jones Newswires. Mr. Collins couldn't be reached for additional comment.
MotherRock's energy fund, which was up slightly on the year in May, took the brunt of its losses in the months to follow, giving up $230 million because of investor redemptions and movements in the natural-gas market, according to a person familiar with the situation. In 2005, MotherRock clocked up net gains of 20%. The fund was primarily invested in natural gas.
The closure of the fund isn't likely to threaten other members or customers of the Nymex. "The system is working and clearing members or other customers are not currently at risk," said Nymex President James Newsome.
Drawing on his Nymex experience and his work as a market maker for New York brokerage Pioneer Futures Inc., Mr. Collins set up MotherRock with Conrad Goerl -- a former trader at Pioneer -- and John D'Agostino, formerly vice president of strategy and business development at Nymex. Before accepting a post as Nymex president in 2001, Mr. Collins led natural-gas trading at Houston energy company El Paso Corp.
The demise of the hedge fund comes amid a period of high volatility in the natural-gas market, after a seasonally unusual draw in gas from storage last week and a rally fueled by a heat wave across much of the country. Having gained 17% in the week of July 24, natural-gas prices surged 14% Monday.
Traders said the huge gains were driven by funds rushing to cover short positions, or bets that prices would fall, aided by speculation that a big market entity was being forced to buy as prices rose. "Looking at the way it folded Monday, people were expecting someone to have taken a hit," said Jason Tidwell, a gas marketer at Texla Energy in Houston. "It was so exaggerated."
When natural-gas prices move sharply higher, investors holding short positions stand to lose more money than they have invested.
MotherRock had "significant losses" in July, though a final tally wasn't yet available, Mr. Collins said in the letter. He said the fund would inform investors of the hit it has taken.