The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders by Kate Kelly Read Free Book Online

profits.
    Having now mastered the art of physical hedging and gotten quite good at speculative trading, Andurand was getting bored again. It was as if all those built-in advantages made trading too easy—or perhaps, given that he wanted even more autonomy over his work to generate fast profits, not easy enough. In 2007 Andurand approached his superiors about the idea of opening his own hedge fund within Vitol. He knew it was a long shot. Domiciled in Switzerland, where the market regulation was looser and the tax rates lower, Vitol was extremely secretive. So asking it to open up its books to potential investors, just so that Andurand could make trades he was already paid handsomely to make without the glare of outside investors, was asking a pretty big favor.
    Predictably, Andurand’s bosses said no. They were not interested in the asset-management business, they told him. But they presented him with some parting gifts: an attractive bonus check and the assurance of a good recommendation to potential investors, should he ever need it.
    Andurand resigned from Vitol in May 2007 and decided to take some time off. He wanted to have some fun. Stressful days in the oil markets had distracted him from keeping fit, normally a priority. Any time his weight crept up past 220 pounds, he knew he was overeating and it was time for a change.
    Andurand had married his girlfriend from Singapore, but things hadn’t worked out, and now that he was divorced, he wanted to meet some new women. So for the next four months, he made it his mission to run, weight train, go on dates, travel, and find his way back to an equilibrium from which he could start a new business.
    About a month into Andurand’s sabbatical, he had an unexpected caller: Dennis Crema, who had managed all the gasoline trading at Vitol. An American whose first exposure to the oil business had been working on a tanker in the Long Island Sound in his early twenties, Crema had been an impressive trader in his own right at the Swiss firm—about as successful, in fact, as Andurand had been. Crema was also older, and after years of working in the physical trading business in the U.S. and London, he had landed a job as, effectively, the head trader at Vitol, a very senior position that reported directly to the company’s president and chief executive officer.
    Crema proposed to join Andurand as CEO of his new hedge fund, playing the senior statesman role to Andurand’s head trader. He had a long list of contacts in the investment business,he argued, and could help the fledgling fund attract new capital. He would also help Andurand figure out how to approach the markets and to interface with brokerage firms on Wall Street, which provided crucial funding and trading assistance.
    “I was very flattered at the time,” says Andurand. “He was a very successful trader at Vitol.” So he accepted.

    Their fund, BlueGold Capital Management, started trading in February 2008 with $120 million in capital and half a dozen employees. February was the very month when the market for mortgages tied to high-risk borrowers, known as “subprime” loans, started to flatline, signaling the beginning of the U.S. credit crisis. Those investors who had seen the drop coming were already positioned for a flurry of late payments or defaults by home-loan recipients and had bought vast quantities of insurance policies that would pay out if the loans went bad.
    But commodities markets were still humming. Chinese manufacturing had by now become the engine of world consumer-goods production. In India, a massive and young population was consuming more services and products. Those two countries alone were on pace to grow their economies at an annual rate ofclose to 10 percent apiece, according to statistics published by the International Monetary Fund—levels that the U.S., whose economy grew by a few percentage points per year, had not seen since the early 1980s.
    Crude oil would be the key to their growth.