Andurand Pulls Back From Cocoa Misadventure After ‘Extreme’ Volatility Drives Losses

Pierre Andurand, founder of Andurand Capital Management LLP, during a Bloomberg Television interview in London, UK, on Wednesday, Nov. 22, 2023. OPEC+ may need to announce deeper oil production cuts this weekend to offset surprisingly strong supply growth from the US and elsewhere, Andurand said. Photo by Chris Ratcliffe /Bloomberg

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(Bloomberg) — Famed oil trader Pierre Andurand has pulled back from a bullish bet on cocoa after a series of mistimed trades led to deep losses, according to a letter sent to investors that was seen by Bloomberg. 

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The gyrations underscore the risk for fund managers that drift away from their core expertise into other markets that carry unfamiliar risks. Andurand, whose main fund was down over 57% through the end of June, began trading cocoa in early 2024 after more than a decade focused primarily on oil. 

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“Recent performance has been very disappointing,” the recent letter to investors said. “Pierre Andurand has further reduced long cocoa exposure in all Andurand funds.”

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A spokesperson for Andurand declined to comment.

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Andurand’s ill-fated foray into cocoa began in January 2024, when an analyst from his firm approached him and proposed a new trade.

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“Pierre, you should look at cocoa,” the analyst said, according to a retelling by Andurand on the Odd Lots podcast in May last year. 

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“Okay, I don’t know anything about it, tell me,” Andurand replied. 

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Until that point, Andurand was primarily known for trading energy. He found initial success buying and selling oil at commodities trading house Vitol Group, before leaving to start hedge fund BlueGold Capital Management in 2008 with the firm’s former head of trading Dennis Crema. Their new venture returned over 200% in its first year thanks to lucrative bets on the price of oil. 

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BlueGold lasted only a few years, suffering steep losses and returning money to its investors in 2012. Andurand launched his eponymous firm the following year, making bets on oil that drove double-digit gains in its early years.

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Andurand branched out from oil to invest in other commodities, including metals. His firm also made profitable bets in recent years on a sharp rise in the price of European carbon allowances.

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Cocoa Strategy

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The cocoa-trading strategy suggested by the analyst at Andurand’s firm was a basic story of a mismatch in supply and demand. A majority of the commodity is grown in just two countries, the Ivory Coast and Ghana. Supplies there looked set to decline for a variety of reasons, such as adverse weather conditions and a fungal disease called Black Pod. 

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Any supply scarcity could have an outsized impact on cocoa futures, because typically demand for chocolate doesn’t respond much to shifts in the price of the raw commodity, Andurand said. 

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Chocolate consumption keeps rising “when you have a recession or not, when prices go up a lot or not,” he said on Odd Lots.

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Initially, the analyst’s assessment of the market proved to be correct. By the end of February 2024, cocoa futures were already up some 50% for the year. Andurand’s firm initiated a small position in cocoa the following month, according to a letter sent to investors. By the end of 2024, bets on cocoa helped drive a 50% gain in his flagship Andurand Commodities Discretionary Enhanced Fund.