Ebullio loses bulk of assets in two months

After ‘extraordinary circumstances’ forced the liquidation of physical and speculative positions, Ebullio Capital Management’s flagship commodity fund is in an extremely difficult position.

The fund returned a negative 86.25% in February 2010, bringing year-to-date return to a minus 95.83%.

In his monthly report fund manager Lars Steffensen told investors February had been the worst month in the history of the Ebullio Commodity Fund. The losses brought return since inception to a negative 89.63% despite positive returns of 91.91% in 2008 and 29.27% in 2009.

“Some extraordinary circumstances forced the Ebullio Commodity Fund to liquidate and/or cancel parts of the physical book and to liquidate some long held speculative positions, mainly in LME [London Metal Exchange] non -ferrous metals,” wrote Steffensen.

The fund had initially reported a loss of 1.1% in January, but the February report was revised downwards finally reporting a negative 69.65%. Before that the fund had suffered only three negative months since inception in August 2008.

Fund assets under management (AUM) were reported at $1.47 million in February, excluding managed account assets. At the end of December 2009, the fund's AUM was over $45 million.

In his report to investors Steffensen admited "quite substantial" redemptions for February and March. He worte that the fund would honour any further redemption requests. The fund was waiving its 2% management fee for the rest of 2010.

In the report Steffensen said: "The liquidity position of the fund is strong with in excess of $40 million in cash and since the remaining physical book is very profitable going forward, we view the future with confidence (this confidence is being justified by our March month-to-date result which is showing a plus of more than +10% at the time of writing)."

He said a positive impact to the fund had been made with holdings in crude oil, wheat, gold and sugar, but these positions were "drowned out by the hugely negative impact made by physical, spread and outright positions" in copper, nickel and tin. Protective options mitigated the losses by 5%.

Steffensen, in charge of the team managing the Commodity Fund, is the managing partner of Ebullio Capital Management and managing director of the Commodity Trading Group. He has 22 years of experience in the commodity industry.

Steffensen declined to comment when contacted by Hedge Funds Review.

The commodity fund is a discretionary, pure commodity fund looking for alpha in all market cycles with transparent risk management. The objective for the fund is double-digit annualised returns with a positive rolling 12-month period with a maximum drawdown of 10% and a standard deviation of 5%-10%.

The objective for the margin to equity ratio is no greater than 20% on a portfolio level and no greater than 10% in any single commodity.