Ebullio Exits 'Impossible' Physical Metals Trading

Sep 4 2013 | 12:25pm ET

In the wake of a court-order to liquidate its Commodity Master Fund, Ebullio Capital Management is quitting the physical metals business.

The British-based hedge fund said it would exit physical metals trading, citing sharply lower profit margins and the difficulty of competing with the industry's largest players.

"It's a market that's been sewn up by banks and trade houses, and others can't operate," Ebullio founder Lars Steffensen told Reuters. "That's OK, that's business, but we can choose not to be in that business."

Steffensen said that the loss of bank financing has cut margins on a typical copper trade by 90%, from 80% per year to 8%, with warehousing prices cutting that to just 1% to 2%.

"Today, because of low interest rates and ownership of warehouses by banks and trade houses, it's become impossible to obtain metal in the spot market outside of warehouses—or you have to pay very high premiums, so it's prohibitive," Steffensen said. Global regulators are looking into whether banks are artificially boosting metal prices by hoarding commodities in their warehouses.

Ebullio has shifted to commodity futures trading. The firm manages US$250 million and its Far East Commodity Fund returned 16.46% last month.

Also in August, a Cayman Islands judge ordered the liquidation of Ebullio's former flagship, Commodity Master, to pay damages to Noble Group stemming from an alleged breach of contract. That fund, which lost 96% in the first two months of 2010, was to be shuttered anyway, Steffensen said.


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