Ospraie Hedge Fund Closing its Doors After Suffering Massive Losses

U.S. Hedge fund Ospraie Management LLC led by veteran commodities investor Dwight Anderson will close its flagship fund after suffering 38.59% losses this year. The fund, according to a report in the WSJ – plunged 27% in August amid misplaced bets on energy, mining and natural resources equity holdings.

Mr. Anderson, who saw his fund’s assets peak at nearly $4 billion late last year ; in a letter sent to investors Tuesday said :

The losses were primarily caused by a substantial selloff in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past ten to twenty years.

Ospraie Management is preparing to distribute 40% of Ospraie Fund’s assets to investors by the end of September. Another 40% is expected to be returned by the end of the year while the remaining 20% of the fund’s assets are, for the time being, almost impossible to sell and return since mostly illiquid. Anderson said the decision to close the fund was reached after it had breached a threshold that allowed investors to redeem their money irrespective of the fund’s lock-up provisions.

The fund’s closing will also impact Lehman Brothers Holdings Inc. (LEH), which bought 20% of Ospraie in 2005 for an undisclosed amount.

Chris Orndorff, head of equity strategy at Payden & Rygel in Los Angeles, said: “I think it’s another piece of bad news for Lehman, which is unfortunate, and it probably raises the stakes on their conversations with the Korean Development Bank.” [Via IHT]

This marks the second time in two years that Ospraie Management faces financial crisis. In early fiscal ’06, bad bets placed on copper drove the fund down nearly 20% before it pared most of those losses by the year’s end. Also in 2006 Anderson, who made his name in hedge funds at Tudor Investment Corp. and Tiger Management LLC, closed down his $250 million Ospraie Point fund.

Anderson said he was extremely disappointed with the outcome – not only as a portfolio manager, but also as one of the largest investors in the Ospraie Fund L.P.