For hedge fund managers the past year has been euphoric, depressing or both, depending on the day and the strategy. Low interest rates, commodity price swings and wild volatility in equity markets opened a wide gap between the best and worst performers, with several strategies sticking out as big winners or losers. Commodities, at least in the way that many investors perceive them — think oil and gold — were a dud for all but the few firms that had predicted the lingering petroleum glut. But in a grim fundraising environment for hedge funds, Aurelia Lamorre-Cargill, co-founder and CEO of newcomer Argon Capital Management, thinks now is the time to make a diversified commodities bet.
Lamorre-Cargill, 41, created New York–based Argon last year with chief investment risk officer Marcos Bueno. She previously spent six years at Barclays, where she helped to build the bank’s fixed-income structuring franchise; Bueno was a commodities expert at Rowayton, Connecticut–headquartered Graham Capital Management. The pair say Argon will give institutional investors unique access and insights into the corners of the commodities market that don’t get as much attention as oil, such as metals, agriculture and natural gas, through a multimanager and multistrategy structure.
“We see the current headlines of a downward cycle in commodities, yet there is significant depth to the asset class,” Lamorre-Cargill explains. “My belief is that once investors have the ability to access specialists of the fragmented commodity market, they will find that this diversification among the commodity subsets can generate sustainable alpha.”
Lamorre-Cargill and Bueno plan to hire six portfolio managers for a single fund, each using a different strategy in futures, equities, currencies and credit and covering all parts of the commodities sector, from metals to agriculture. This diversification will help to protect investors from price swings in one area and offer better returns, Lamorre-Cargill says.
But first Argon needs to raise money. As hard as things have been for many established hedge fund firms, the road for new players is even more uncertain. If Argon gathers the $400 million to $500 million it needs for a planned launch in the first half of 2016, it will join the ranks of firms that beat the odds because of pedigree, experience, connections or timing.
Starting a hedge fund is more expensive than ever, and in most cases it’s necessary to team up with a seeder, unless the founder can raise several hundred million dollars from friends, family or a fond former employer. The latter contingent has driven several recent blockbuster launches, including that of Scott Bessent’s New York–based Key Square Group, formed with the help of a $2 billion investment from ex-boss George Soros. When Christopher Rokos, co-founder of Brevan Howard Asset Management, branched out on his own with Rokos Capital Management last year, the London-headquartered firm quickly assembled $1 billion in assets, partly thanks to Rokos’s track record.
It’s not impossible to start a hedge fund firm without the flash of a Bessent or a Rokos, but Alessandra Tocco, global head of capital introduction at J.P. Morgan in New York, says the barriers to entry have gotten higher: “The seed community has become increasingly important, and it is uncovering pockets of capital that tend to like to go early.”
But in contrast to 2010 and 2011, when many managers exited the likes of Goldman Sachs Group, SAC Capital Advisors and Ziff Brothers Investments to start their own funds, more investors are waiting out the first few months of a firm’s performance before diving in. “There still remains high interest in looking at new launches, but I think the differentiating factor today is there’s no impetus to be a day-one investor,” Tocco says.
This climate can be especially daunting for new firms looking to market a strategy that’s somewhat out of favor, such as commodities. But Lamorre-Cargill says she and the growing team at Argon are optimistic.
“We have the combination of commodities being perceived as a tough asset class and us being very ambitious and having a very new idea, so we knew fundraising might be difficult,” she admits. Still, “the reception has been much more positive than we expected.”
Follow Kaitlin Ugolik on Twitter at @kaitlinugolik.
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