Pierre Andurand, one of the world’s best-known hedge fund managers specialising in oil, cashed in on US crude’s historic crash this week, adding to strong gains in both of his main funds this year.
Mr Andurand, who has been betting against crude prices since early in the year, said he saw little respite for the oil industry until a vaccine was discovered for coronavirus, which has led to a sharp economic slowdown and cut the world’s demand for oil by as much as one-third.
US crude prices dropped below zero for the first time on Monday, as storage tanks filled up, forcing producers to essentially pay traders to take barrels off their hands.
“It is a crazy time, but it really shows what happens when we test logistical constraints like pipelines and storage tanks in a market the size of oil,” Mr Andurand said. “When there is not enough storage for the oil the world is still producing, then prices can go anywhere to the downside.”
His London-based Andurand Capital Management fund, which was managing about $1bn last year, has emerged as one of the biggest winners from the oil slump, bolstering his reputation for identifying and riding big swings in the market. Mr Andurand came to prominence in 2008, betting on oil’s spike to almost $150 a barrel before cashing in on its subsequent crash.
Mr Andurand said the coronavirus outbreak had become his singular area of focus since early this year, when he spent two weeks studying the early spread of the disease. The fund manager — a kick-boxing devotee and former champion swimmer — shut his Knightsbridge office in early February, asking staff to work from home, weeks before the UK entered a formal lockdown on March 23.
“I thought a lot of people were in denial about the potential for a pandemic and its knock-on effects,” Mr Andurand said. “It was clear to me from February that it was going to spread to the rest of the world, that it was contagious, and that the potential death toll meant there was no other way than to have a lockdown.”
His two funds started betting against the oil price, reasoning energy would be one of the hardest-hit sectors. The core fund, which holds roughly half of the firm’s assets under management, gained more than 63 per cent for the year, net of fees, in the first quarter, according to people familiar with the fund’s performance.
His second, riskier fund, which is now roughly the same size, was up 153 per cent over the same period. Crude was trading close to $70 a barrel in early January.
In the midst of the firm’s winning run, Cameron van der Burgh, an analyst at the firm and former world record holder for the men’s 100-metre breaststroke, was struck down by the virus. He described the severity of his illness on Twitter as a warning to those still arguing it would not affect young, healthy people.
Mr van der Burgh, who has recovered, on Monday posted a Photoshopped image of Mr Andurand as actor Will Smith in the post-apocalyptic movie, I am Legend, saying the fund manager had told him in February prices would turn negative. He added the hashtag #KingOfOil.
Mr Andurand confirmed he had bet against US crude oil prices on Monday but said he had closed the position shortly before prices turned negative, deciding to take profits rather than build up more risk.
The fund has taken a more cautious stance in April to protect its bumper returns in the first quarter, but also because of the risk of political intervention in the oil market. People familiar with the fund’s performance said it was up so far this month.
A tweet from President Trump this month prompted oil prices to spike, though the deal with Opec the US president was touting has since failed to prop up the market.
Mr Andurand said. “We’ve had a good run; let’s reduce the risk a little and wait.”
He does not expect to turn bullish on the oil price anytime soon, however.
“We’re going to go through an economic depression . . . with a very large amount of unemployment that will last longer than most people expect,” Mr Andurand said.
“Central banks can support bond prices and equities for some time, but it’s much more difficult for oil as it’s a real physical commodity.”