Reuters: Private Equity: Ex-Credit Suisse gas trader to close fund at $1 bln-plus

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Ex-Credit Suisse gas trader to close fund at $1 bln-plus Mar 19th 2012, 21:06 Mon Mar 19, 2012 5:06pm EDT * Fund is focused on oil * Taylor plans to increase portfolio risk * Says bearish on coal, natural gas By Jeanine Prezioso NEW YORK, March 19 (Reuters) - Taylor Woods Capital Management, the commodity hedge fund founded by former Credit Suisse natural gas trader George "Beau" Taylor, will close to new investment this month with more than $1 billion, two industry sources said. Taylor Woods Master Fund Ltd, which had targeted $500 million in investments when it started raising money in January 2011, will close on March 31 with nearly $1.3 billion of assets, they said. The relatively rapid growth, despite a challenging 2011, suggests investor appetite for actively managed commodity portfolios remains strong. That is good news for a handful of former investment bank traders who have fled Wall Street as the Volcker Rule calls for a halt to decades of proprietary trading. After a year in which even the most experienced hedge fund managers struggled to break even, the Greenwich-based fund says it has turned a corner. As of March 9, the fund was up 3.25 percent year-to-date, partly thanks to a shift toward bullish bets on the price of oil, which has rallied this year. "While the conditions in 2011 were not ideal for our strategy, we believe that the conditions in 2012 will be far more optimal," Taylor wrote in a letter to investors earlier this month, a copy of which was obtained by Reuters. Last November, Taylor's fund was reported to have $470 million under management and was down an estimated 4 percent. Full-year results were not immediately available. The fund plans to increase risk this year across its portfolio, mindful of geopolitical risk in the Middle East and low interest rates in the U.S. "While we would anticipate more volatility in the portfolio due to the dynamic nature of the current markets, we believe the current conditions warrant the additional risk," he wrote. Taylor declined to comment for this story. GAS BEAR TURNED OIL BULL Like many new fund managers, Taylor began his career on Wall Street, trading natural gas at Morgan Stanley before moving to JP Morgan in early 2005. In 2007, he became co-head of Credit Suisse's global commodities business, but left in September 2010 as new restrictions came into place. The fund, which received $150 million in seed capital from Stephen Schwarzman's Blackstone Group, began trading on Feb. 1, 2011 and trades across all commodity markets. While a natural gas trader by nature, Taylor's focus has shifted more toward oil, which has rallied this year to a more than two-year high even as a glut of shale gas production and weak winter demand drives natural gas prices to 10-year lows. Increased competition for North Sea oil supplies - the Brent crude benchmark - has caused Brent crude oil to become "arguably the tightest commodity on the planet," Taylor said in the letter. In addition, rising tensions between western nations and Iran threatened an oil supply interruption in recent weeks and has led Brent to its highest price since 2008 at more than $128 a barrel. U.S. crude oil prices similarly rose to a 10-month peak at more than $110 per barrel. "We believe that event risk is extremely high with Western governments contemplating reserve releases, sanctions against Iran and potentially military action in the Middle East," Taylor said. A release of Strategic Petroleum Reserve oil, which has been contemplated by U.S. and British governments as a panacea to soothe high oil prices, would "mark a major bottom in the market and a significant buying opportunity," he said. GLOBAL "UTILITY FUELS" YAWN Taylor is "bearish" on both coal and natural gas, he writes in the letter. Rising coal exports from the U.S., Colombia, Russia and South Africa are not being absorbed by Europe as demand for the fuel wanes, Taylor wrote. And Indian and Chinese demand for coal is strong but is being met by Indonesian supplies. The United States is the swing market and as natural gas displaces more coal, U.S. coal producers are discounting spot coal cargoes to sell to Europe, "to avoid shutting in production altogether." Coal prices are being inflated by hedging from European utilities (to around $113) and could collapse as calendar 2013 prices move closer to the spot price, "making a short position attractive from these levels," he told investors. Link this Share this Digg this Email Reprints

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