By Grant Smith
March 30 (Bloomberg) -- Andrew Serotta, the Vitol Group oil trader who left last year as the firm scaled back its derivatives business, said he plans to start a $100 million hedge fund called Logista Capital to trade in crude futures.
The fund will employ four other people and start in either August or September, Serotta, 38, said. It will trade options as well as the difference between two futures contracts, known as spreads. He has raised about 25 percent of the $100 million and will contribute a portion of the capital himself.
“The markets are in a general state of disarray, it’s a perfect time to launch,” Serotta said in a telephone interview from Houston on March 27. “The number of relative value traders in a position to take advantage of the opportunities out there is severely diminished.”
Serotta will start Logista as the global hedge fund industry contracts. Hedge-fund liquidations rose to an all-time high last year as managers posted record losses, according to Hedge Fund Research Inc. The industry may shrink 11 percent this year to $1.33 trillion, a survey by Deutsche Bank AG said. Crude oil has rallied this year, recovering after a $100 a barrel collapse from July’s record prices.
“I’m starting to see investors slowly beginning to allocate to hedge funds again, especially those that are trading liquid strategies,” said Peter Rup, chief investment officer at New York-based Orion Capital Management LLC, which invests in hedge funds. “Energy is attractive at the moment.”
BlueGold Capital
Another former Vitol Group trader, Pierre Andurand, left the company in 2007 to found a $1.1 billion commodity investment fund with colleagues from the Geneva-based firm. BlueGold Capital Management LLP returned 209 percent last year by anticipating the rally and then collapse in crude prices.
“I’m going to keep doing exactly what I was doing at Vitol,” Serotta said. Logista will place trades on the price difference between monthly crude oil futures contracts, so- called time-spreads, and on options that give the right to buy or sell oil at specified prices, Serotta said.
In January, Serotta said he was asked to leave Vitol Capital Management, a Houston-based unit of the closely held commodities trader, because the company wanted to focus on physical commodity markets rather than more “visible” derivatives trading.
Vitol’s decision to reduce its involvement in the derivatives trading was linked to the reclassification of the unit’s trades by U.S. regulators as speculative, Serotta said at the time. A Vitol spokesman said at the time that the Commodity Futures Trading Commission, which regulates U.S. markets, hadn’t notified Vitol of any change in its trading status.
Futures Contracts
The Wall Street Journal reported Dec. 24 that at one point in July, the Vitol hedge fund had amassed futures contracts on the New York Mercantile Exchange that represented 11 percent of all crude-oil bets on the exchange. Serotta said on Jan. 7 that he wasn’t aware that any trader at Vitol Capital Management had contracts that amounted to 11 percent of the market.
Time spreads for New York oil futures have reached records this year as a glut of crude depressed prices for immediate delivery. The so-called contango structure prompted oil companies and investment banks such as Royal Dutch Shell Plc and Citigroup Inc. to store oil on tankers to profit from the higher long-term price.
“The contango is going to be here for a while,” Serotta said. “As long as the world is in the dismal state it is, and there’s plenty spare OPEC capacity, it’s going to be difficult to get the market back into backwardation.”
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
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