High-frequency traders seem to have pulled back from the commodities space in the past couple of years, said Mike Coleman, chief executive of Singapore-based RCMA Asset Management, which until earlier this year was Aisling Analytics.

“In 2011/12, high-frequency traders were a big feature of the crude oil market, but my sense is that they are less active in commodities than they were," he told AsianInvestor. "I’m not sure why; maybe they find them harder than equities or interest rates."

Another factor may be that there is less liquidity in the commodities market now due to reduced demand for commodity investments, noted Coleman, founder and head of one of the oldest commodity hedge strategies in Asia, the Merchant Commodity Fund*.

Interest in the commodity sector has certainly declined. “There was a nice narrative there around the growth of China, combined with concerns about peak oil, peak agriculture etcetera," said Coleman. "But that’s all sort of faded as Chinese demand has slowed, the world’s farmers have continued to deliver and US shale has put a dent in peak oil.

"Whether all this has fatally undermined the commodity thesis or just put a dent in it is unclear," he added. “We’re certainly in a cyclical bear phase [for commodities], which is never as exciting as being in a bull phase."

As a result, commodity hedge funds have been dropping like flies in the past year or so. The UK’s Clive Capital and US-based Arbalet Capital closed in 2013, while Schroders shut its commodity fund of funds, Opus, in May this year.

RCMA’s own AUM has dropped to $140 million from its peak of $2.5 billion in early 2008 as the long-standing Merchant Commodity Fund, which turned 10 years old in May. The firm discussed shutting the fund at the end of 2012, admitted Coleman, but ultimately felt “very strongly” it wanted to continue.

The decision to continue involved significant changes. One was the departure in late 2011 of chief operating officer Paul Pavey in late 2011, with founder Coleman taking on responsibility for operations and risk management and stepping back from trading. The headcount was then cut from 15 to 10 in late 2012.

Another move was to more closely align with sister physical trading house RCMA Group Asia and rebrand as RCMA, which was completed in March this year. The thinking was that the investment team would consequently be better able to draw on information from the trading company.

This seems to have paid off. RCMA is up 6% this year as of end-June after returning 15.5% in 2013.

“We’ve had a very good 18 months rebuilding performance and have been one of the few performing players in the space over the last 18 months,” said Coleman, “so hopefully investors will begin to notice us again.”

Yesterday, in another deal seeking to profit from the trading of physical commodities, it emerged that Hong Kong-based trading house Noble Group has partnered US private equity firm EIG Global Energy Partners to form Harbour Energy. The joint venture will buy assets that provide exposure to energy supply trends by controlling offtake, logistics and supply chain management.  

*An interview with Coleman about how RCMA is set up operationally will appear in the forthcoming (July) issue of AsianInvestor.