Ospraie Hedge Fund Muffs Metals Rally

Anderson scored a coup last spring when he sold a 20% equity stake in Ospraie to Lehman Brothers(LEH). The Wall Street firm paid about $80 million to capture some of the profits from the hedge fund.

Lehman spokesman Randall Whitestone declined to comment on Ospraie's performance.

Sources say several international banks also have incurred trading losses due to the spike in metal prices.

Sol Waksman, president of the Barclay Group, a hedge fund tracking service for commodity traders, says it's hard to find any hedge fund that's not making money from trading metals this year. Gold funds are doing particularly well, with many up more than 50%.

But Waksman says in a market as hot as the current one, he could see how a bearish trader could get blindsided.

"This price boom in industrial and precious metals has been explosive,'' says Waksman. "If [hedge funds] are looking at prices from a value basis, they may feel it is overdone. But getting in front of freight train is always risky, and these prices are moving like a train."

A person familiar with Ospraie says Anderson ran into trouble this year because his trading models for copper and other metals didn't take into account that the big surge in commodity prices would draw in so many speculative investors.

"These are value-oriented guys, but these markets have been going insane,'' says the source. "There's been such a rush of money into the sector.''

Anderson's boosters note there's still plenty of time left in 2006 for Ospraie to right itself.

In fact, that's what happened over the past few months with Canada's Leeward Hedge Funds group. The Toronto-based fund's Leeward Offshore Resource Fund, which mainly invests in stocks of mining and natural-resource companies, was down 6% going into March.

But a strong performance the past two months has left the Leeward fund flat for the year.

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