Registered: Sep 2004
02-28-08 10:46 AM
Trader Hits Jackpot in Oil,
As Commodity Boom Roars On
Mr. Hall Bet Early
On Market Shift;
By ANN DAVIS
February 28, 2008; Page A1
WESTPORT, Conn. -- The commodities market's historic surge is generating huge paydays on Wall Street. One of the biggest beneficiaries has been Andrew J. Hall, an enigmatic British-born trader who, five years ago, anticipated an important shift in the way the world valued oil -- and bet big.
Over the past five years, Mr. Hall's compensation has totaled well over a quarter-billion dollars, according to a Wall Street Journal analysis of securities filings and Mr. Hall's compensation structure. One of those years he out-earned his boss, the head of Citigroup Inc., about five times over.
Last year, an unusually rough one for Citigroup, Mr. Hall's secretive trading unit, Phibro, generated close to 10% of the bank's total net income.
Mr. Hall's power at Citigroup is the result of his winning bets on oil and natural gas, part of a broader commodities boom that has swept the world this decade.
Yesterday, for the eighth straight day, the Dow Jones-AIG Commodity Index set a new record. Oil itself is within striking distance of its all-time high, in inflation-adjusted terms, of $103.76 a barrel, a record that has stood for more than a quarter-century. Oil set a new intraday high yesterday of $102.08 a barrel before closing at $99.64. The boom has spurred economists to re-evaluate what the world is willing to pay for everything from copper to coal.
Mr. Hall's bet -- that long-term and short-term energy prices would soon abandon their historical relationship with one another -- looked like a long shot when he made it. In making it, Mr. Hall individually took on more risk than Citigroup typically permits some groups of traders to carry, according to a person familiar with the bank.
Now, after 15 straight profitable years, Mr. Hall has considered breaking out on his own. Last year, for the first time, he began managing outside money for clients including investment giant Blackstone Group and others.
Officials at Citigroup say they are "committed" to Mr. Hall and to Phibro, a once-legendary but now nearly forgotten commodities firm that Citigroup inherited a decade ago.
Questions about the future of Phibro could add to the problems facing Citigroup and its new CEO, Vikram Pandit. A sprawling company with 300,000 employees, Citigroup is trying to nurture entrepreneurial talents like Mr. Hall, while curbing risk-taking elsewhere. The bank can ill afford to lose top performers after a tough 2007, in which it wrote off billions of dollars in failed mortgage bets.
Mr. Pandit and his team see Phibro as an "underleveraged" brand, which, while still a profit center, has fallen off the financial world's radar, one executive says. Some top executives at Citigroup hope to establish Phibro as a prestigious investment fund for Citigroup clients. That would move Phibro beyond its current role as a commodities shop trading solely on the bank's behalf, as Phibro has functioned for years.
Late last year, Citigroup told Phibro executives that it was interested in broadening the unit's scope by merging it into Citigroup's asset-management arm. That would effectively turn Phibro into a hedge fund, managing money for clients but much less of Citigroup's own capital.
The 57-year-old trader balked. Mr. Hall called the idea "a complete nonstarter," according to a person familiar with the exchange.
He preferred to preserve Phibro's operations as they have been. Mr. Hall tells friends that "benign neglect" on the part of Citigroup is why Phibro has thrived so far.
While Mr. Hall is on a winning streak this decade, he has had setbacks in the past. Phibro had three unprofitable years in 1991, 1992 and 1993, when it went through a rough patch with its refining businesses amid an economic downturn.
A naturalized American citizen, Mr. Hall no longer considers himself British. He has emerged as one of the world's top collectors of contemporary art, favoring often-shocking works that explore subjects including the human toll of the Nazis. He bought a nearly 1,000-year-old castle in Germany to display his collection.
In the Connecticut town of Southport where he lives, he is famous for waging a four-year battle with the neighbors to place "Etroits sont les Vaisseaux," or "Narrow Are the Vessels," an 80-foot-long concrete sculpture, on the lawn of his Greek Revival home.
He lost that fight in 2007 after Connecticut courts forced him to remove it from his lawn. He immediately replaced it with two, brightly painted, cartoonlike sculptures of cars by the artist Julian Opie.
Most afternoons Mr. Hall leaves the office to go rowing or to practice calisthenics with a ballet teacher.
Around 2003, Mr. Hall became convinced big structural changes were looming in the oil markets. For more than a decade, oil had ranged from $10 to $30 a barrel. But growth in demand was starting to outstrip growth in supply. And the once-sleepy economies of China and India were starting to compete for that fuel.
To place his bet, he focused on what was then a stagnant corner of the commodities world: The extremely long-term market in which traders buy and sell oil to be delivered years in the future.