Red Kite Closes Trinity Metals Fund as Costs Eat Into Returns

(Bloomberg) --

Red Kite Capital Management has closed its Trinity metals fund despite a strong performance in 2020, and less than two years since it launched with backing from one of the best-known names in copper trading.

The fund was shut down at the end of September, partly because it was facing higher operational costs following the recent closure of another Red Kite fund, portfolio manager George Daniel said in an interview. Trinity started up in June 2019 with seed funding from Red Kite co-founder Michael Farmer -- known in the industry as “Mr. Copper.”

The closing of the Trinity fund leaves Red Kite’s mine-finance fund as the last major investment vehicle within Red Kite. Farmer co-founded the firm with David Lilley and Oskar Lewnowski III in the mid-2000s, and at its peak the group had more than $3 billion under management.

It was famed for its bold bets in the copper market as China’s rampant demand for raw materials drove prices to all-time highs, but returns suffered during the downswing in the commodities supercycle.

Trinity made an annual return of about 28% before closing, Daniel said. The Covid-19 pandemic created huge opportunities for specialist hedge funds like Red Kite, as China’s rapid recovery fuels the biggest rally in copper prices in more than a decade. The improved returns have signaled a possible revival for the sector, which struggled in recent years. However, raising fresh funds and keeping a cap on costs have proved challenging.

Red Kite didn’t immediately respond to requests for comment.

Daniel has accepted an offer to join a rival hedge fund, he said, declining to name the firm.

Trinity’s positive performance this year has come as Daniel correctly predicted that copper prices would bounce back strongly following a rout in the first quarter, driven by China’s rapid recovery from the coronavirus outbreak. Prices hit a seven-year high above $7,500 a ton on Friday, up more than 70% from a March low.

“It’s been a great year if you’ve been a believer in the copper story,” he said by phone. “It was so well highlighted that I find it quite surprising that people hadn’t got on board with it.”

Daniel said he’s confident investor money is starting to flow back into the market, although the pandemic is making the process of raising fresh funds more difficult.

“If Covid wasn’t around and this wasn’t the situation, I think we would have quite easily raised money,” he said. “We had a great performance, but with a lack of investment in this coronavirus environment.”

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