Diapason Commodity Investors Cut Funds as Prices Fall

By Chanyaporn Chanjaroen and Nigel Stevenson

Aug. 18 (Bloomberg) -- Diapason Commodities Management SA, the Switzerland-based manager of $8.5 billion in commodities, said investors withdrew 5 percent to 10 percent of their holdings from its index funds after a drop in prices.

The Diapason Commodities Index has lost 20 percent from its July 3 peak as crude oil, gold and agricultural products fell. The Standard & Poor's GSCI index has dropped 21 percent over the same period and the Reuters/Jefferies CRB index 19 percent.

``The market has come back 15 percent off the peak and we probably had 5 to 10 percent in redemptions on top of that,'' Sean Corrigan, chief investment strategist at Diapason, said today in a Bloomberg Television interview.

Commodities as measured by the CRB index advanced for six consecutive years, bolstered by record prices for everything from oil to gold. Assets linked to commodity indexes totaled $297 billion as of June, from about $76.7 billion at the beginning of 2006, according to Lehman Brothers Holdings Inc.

Stock markets and bonds beat commodities since the start of the third quarter on concern that the global credit crisis and recession may curb demand for raw materials and energy. The Standard & Poor's 500 Index has returned 1.4 percent and U.S. 10-year treasuries have climbed 1.3 percent in the period, compared with a 17 percent slump in the Reuters/Jefferies index.

Structured Products

Money has also been withdrawn from structured commodity products, customized investments for those unwilling or unable to invest through indexes or derivatives, Lausanne-based Corrigan said.

``Some of the frothy money has clearly been redeemed,'' he said. Still, pension and insurance funds are still investing.

``They have come to a decision that commodities should be a part of their portfolio and so far they are sticking to it,'' Corrigan said.

His comment echoes the California Public Employees' Retirement System, the largest U.S. pension fund, which said Aug. 15 it remains committed to investments in commodities even after prices descended into a bear market this month.

``In the long run, there is a price when you don't want to be short of these resources,'' Corrigan said. ``Raw materials are the basis of modern industry.''

To contact the reporters on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net; Nigel Stevenson in London at nstevenson@bloomberg.net