The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders (15 page)

He went through his usual laid-back morning routine, checking the BlackBerry as he went. Brent dropped to $105 at one point. He was glad he had sold so much off the prior day. Meanwhile, he still had a company to manage. He fired off a note to Patel and BlueGold’s analyst, telling them he’d be in very shortly and that things would be okay.

By the time Andurand reached the office, Brent had recovered some, and was now down only $1.50 or so on the day. That was a relief. The BlueGold team just couldn’t be sure how long the respite might last.

Andurand and his traders examined their positions. They had sold off a chunk of their near-term exposure, but still had a number of December 2013 crude contracts.

Andurand instructed the traders to sell more of the nearer-term exposure, along with some ancillary positions in copper and agricultural commodities, instruments that fit with an overall positive outlook on the markets. Copper, a base metal used in nearly every electronic device and a key import in China, was a good bet in a time of economic growth, and soft commodities like corn and wheat were also poised for potential price gains. But with the market in such a sour frame of mind, even in the absence of news, Andurand was taking no chances.

Halfway through the afternoon, BlueGold had sold off another $2 billion of its overall bet on a crude-price rise. But it still had $3.5 billion invested in the market, the bulk of which was tied to upward price moves in Brent and West Texas contracts. The traders pared their Brent contract holdings a little more, leaving the fund with about $3 billion remaining. BlueGold would bank on the good health of the West Texas crude market in Oklahoma for a little while longer.

Andurand and Slyusarenko had plans that weekend to go to Paris for a wedding-dress fitting, one of four visits that would be needed before the dress was finished. Despite all that had happened at BlueGold that week, Andurand opted to go.

Like Patel, he avoided talking much to his fiancée about what went on at work. Slyusarenko could see from his face that he was feeling anxious, and she told him she was sorry he was stressed. But there was no real discussion of the terrifying events that had occurred.

Andurand couldn’t get the markets off his mind. He left London Friday night on the Eurostar, after the most bruising thirty-six hours
of his career, only to wake up in another city to look at a piece of clothing worth many thousands of dollars. He found his thoughts going to strange places. Maybe the markets were being manipulated, he thought. Maybe the Federal Reserve had plans to spend gobs of money—tens of billions a day—to float the American economy, only to sabotage the price of oil. There was no evidence of that, but it could be true, he thought, and the U.S. just hadn’t yet announced it. He was certainly losing his predictive touch.

Things did not improve that year. For the month of May 2011 alone, BlueGold marked losses of 23 percent, and in the seven months that followed, the fund avoided losses only once, leaving its annual performance deeply in the red. Politics in Europe, where the prime ministers of Greece and Italy had resigned amid fiscal crisis, and potential crisis in the Middle East, where Iran and Israel appeared primed for war, were muddying the picture. In the U.S. the markets had been rattled by the failure of MF Global, the commodity broker run by Jon Corzine, a onetime head of Goldman Sachs.

To curb BlueGold’s exposure to additional losses, Andurand had set more conservative risk parameters that lowered the amount of money he could lose in a single day before he had to begin cutting positions entirely. He also reduced BlueGold’s leverage and sold off peripheral positions.

Andurand and Slyusarenko were married that August in St. Petersburg before a hundred friends and family members. The bride, then four months from giving birth to their daughter, looked impossibly svelte in a fitted white lace column, which she’d purchased off the rack in London after abandoning the
tailor-made Parisian version. She carried a simple sprig of white flowers and wore her long, brown hair in waves beneath a lace-edged tulle veil. Andurand, looking fit with his hair buzzed, wore a tuxedo and black tie.

Guests sipping cocktails after the ceremony were serenaded by the British singer Craig David, known for his soft brand of hip-hop; between courses at the formal dinner that followed, the Bolshoi ballet performed with a full orchestra in accompaniment. The capper was a live concert by Elton John, who was said to charge $
1 million for private performances (that was the reported cost for the conservative talk-radio personality Rush Limbaugh, for whose wedding John had played the year before).

“It was over the top,” remembers Andurand’s mother, Danielle. For friends who couldn’t make it to St. Petersburg in person, the groom hired a videographer to chronicle the event and showed the film at a London movie theater when he returned from a safari and whale-watching on his honeymoon in South Africa.

For Andurand, the wedding was a welcome distraction as his business was coming unhinged. “We continue to focus on the fundamentals of our markets in the context of the broad macro picture,” Andurand and Crema wrote in their November 2011 investor letter, “and are patiently waiting for a clearer opportunity to express our view.” By year’s end, BlueGold was down 35 percent and its assets had diminished to $1 billion. Its directional bets on a crude-price hike were not working, and tension was brewing between the two partners.

Andurand and Crema had always maintained a professional atmosphere, but the two were never close friends. Crema was older, with grown children; Andurand was newly married and facing first-time parenthood. Andurand had always been a brash
risk-taker, willing to make aggressive bets on broad oil-market moves, whereas Crema excelled more in the sort of comparative trading of two or more products with price discrepancies in their markets that Ruggles and Jennifer Fan preferred. Andurand understood the nuances of crude, and Crema understood refined products. Crema had more experience as a manager, and was closer to retirement. He appeared to some to be looking for a comfortable way to exit the business.

That winter, knowing their results would be terrible, the partners agreed to split. Initially, Crema appeared willing to be bought out of BlueGold, with Andurand taking over on the first day of 2012. But they couldn’t agree on a price. Crema wanted a big payout if he was to leave, but refused to pay Andurand anything to leave himself.

While the partner drama unfolded in private, the rest of BlueGold’s team carried on as usual. Andurand and Crema had paid Christmas bonuses out of their own pockets, and, despite the fund’s negative returns, employees seemed calm. Paul Feldman, BlueGold’s CFO, had taken time off for a two-week vacation in Australia on that holiday; when he returned early in the new year, he was surprised to hear that Andurand and Crema were at odds. “You would never think anything was wrong,” Feldman remembers. “No one in the organization had any inkling.”

As the partners hashed it out, Andurand tried to restructure BlueGold’s portfolio. He reduced risk yet again and searched for investments in some of the more regional markets in Europe. It was a halfhearted effort. Some days he felt depressed and couldn’t drag himself to work until midafternoon. He reasoned that he was working when he was at home, and that he deserved some time with his baby daughter, born in London shortly before Christmas. Unfortunately, though, his confidence was blown.

Unable to agree on terms, Andurand and Crema finally stopped negotiating—just in time for the usual first-quarter visits from investors who wanted to hear their plans for the year. These were the loyal clients who had stayed with BlueGold despite the downturn, and they deserved honest information. But with their own decisions unmade, the partners felt they had little choice but to field questions about the fund’s future without divulging that it might not have one.

Three months into 2012, they decided to simply close. Neither Andurand nor Crema was willing to walk away for the money being offered, so it seemed easiest to just liquidate BlueGold, turning its existing positions into cash and returning what they generated to investors. They announced their plans on April 5, with their portfolio down 3 percent for the year. Andurand then took off for the Caribbean to vacation with his new wife and daughter, having not yet spoken to all of BlueGold’s clients personally.

Investors were furious. Those who had come through in March and heard nothing of the problems felt especially duped. One later griped that conversations with Andurand had always been too light on crude markets and heavy on irrelevant topics like kickboxing.

“I fielded a few of those calls,” says Feldman. “We kind of just kept to the line that we couldn’t announce anything until there was something to announce. It did create a bad feeling.”

The unwinding of the firm was almost as painful as the decision to do so. Andurand continued coming to work to oversee the sales of BlueGold’s positions and field the occasional phone call. But
things were very slow. Where it had previously bustled with activity, the Sloane Square space by May was essentially a collection of half-packed boxes and a sprinkling of staff without much to do.

The business was now almost penniless too. After nearly all the trading positions were sold for cash and the investors’ money returned, the founding partners wound up with just $2 million that they shared according to their ownership stakes: 53 percent for Andurand, and 42 percent for Crema (the other 5 percent went to some minority partners who had since left the company). But because of a handful of equity positions that couldn’t yet be sold off, a shell of the company remained intact.

To have a place to continue working, Andurand rented a temporary office five minutes from his house in Knightsbridge. He also secured a new trading space at 100 Brompton Road—the same address where BlueGold had been in its infancy—and began renovating the third floor. He wanted to open up a new hedge fund on his own. Maybe he’d even hire a feng shui expert, he mused, to advise him on the décor in hopes of bringing better luck. A fish tank was supposed to help, he’d heard. (Glencore’s office building in Mayfair had two.) He planned to bring his chief financial officer, risk manager, and investor-relations head along with him.

As he mulled his next steps, Andurand kept busy with side projects. He had a mixed track record outside of trading. He’d lost $3 million on a friend’s movie project about a ballroom love story. The $13 million investment he’d made in a yet-to-be-developed French ski resort had languished. And he spent $20 million building a high-end resort in Koh Samui, an island in the Gulf of Thailand. In the meantime, he was focused on a touring kickboxing league he had recently put $20 million into, convinced that the
underappreciated sport was poised for massive future returns. “Worst case,” he said, “I lose 60 percent. Best case I make 100 times my investment.”

That July, the Andurand family decamped to Sarrians, a small town in the south of France, for a month’s holiday. Provence was in full bloom. Lavender and sunflowers dotted the fields, fresh tomatoes and zucchini filled the local markets, and the chirps of
les cigales,
or cicadas, were everywhere.