London's 'Mr Copper' restructures his Red Kite fund – Financial Times

This article was originally published on this site

Red Kite was set up in 2005 and for years was one of the largest traders of physical copper © Reuters

A City of London financier known as “Mr Copper” is restructuring his influential Red Kite metals hedge fund, while his co-founder has announced plans to strike out with his own investment vehicle.

Michael Farmer’s RK Capital Management LLP, the management company that runs the Red Kite fund, is “in the process of a restructuring review” which may affect its activity in future years, according to UK filings.

Separate filings show Lord Farmer’s co-founder David Lilley is setting up his own fund, called Drakewood Capital Management. Red Kite declined to comment.

Red Kite was set up in 2005 and for years was one of the largest traders of physical copper. In 2013, it generated a 50 per cent return for its investors. Lord Farmer, an evangelical Christian, became a multi-millionaire and major donor to the Conservative party, which made him a life peer in 2014.

More recently, the fund has moved away from trading physical copper towards mine finance and mining equities. Lord Farmer’s son, George Farmer, has also taken a bigger role.

Traditional commodity trading funds have found it increasingly difficult to compete with the high-frequency trading funds that have moved into the metals markets in the past few years. In a speech to the London Metal Exchange annual dinner in November 2016, Lord Farmer accused high-frequency traders of “jumping ahead” of other traders’ orders.

In addition, Chinese traders have increasing influence over the price of copper and often have an information advantage, since China is responsible for more than 40 per cent of global copper consumption.

In 2008, Red Kite expanded into Asia by setting up a metals fund with China’s Maike Group, one of the country’s largest commodity trading companies. Called Hong Feng Zheng, which is Chinese for red kite, its performance has recently suffered, according to a person close to the fund, leading to the departure of a portfolio manager.

Last year, Red Kite filed a $850m lawsuit against UK bank Barclays, accusing it of causing it vast losses by front-running its trades in the copper market. Barclays, which is understood to be contesting the claim, has declined to comment on the case.

Red Kite’s chief financial officer, Paul Coughlan, is listed as a director of Mr Lilley’s new fund, the filings show. Last month Mr Lilley also bought the copper tubes business of US company Luvata.

The Red Kite management company made a profit of £5m in the year ending March 2017, according to company filings, compared to £4.47m a year earlier.