Commodities investing bites back at credit crunch

Shanny Basar
04 Dec 2007

Investment in commodity indices could jump by fifth to $150bn (€101bn) next year as the asset class has performed best since the start of the credit crunch, according to Barclays Capital.


Philippe Comer, head of commodity investor solutions for the Americas at Barclays Capital, estimated inflows into commodities indices may reach $125bn this year, up from $105bn last year. He said the pace of investment would increase next year due to strong performance and increased allocations from public pension funds.

He said: “In January, Calpers, the Californian pension fund, started a pilot program to put $500m into commodities and at the end of this year are investing in inflation-linked assets, a large proportion of which will be commodities.”

Since the start of the third quarter, the S&P GSCI TR commodity indices have returned more than 20%, compared to less than 10% from government bonds, according to Barclays Capital.

The bank said the commodity bull market is in its early stages. Kevin Norrish, director of commodities research, said: “During what is often called the second industrial revolution at the turn of the 19th century, US industrialization, urbanization and electrification kept copper prices much higher than today’s levels for much longer. China’s industrialization is on a far larger scale.”

Last month, both JP Morgan and rival BNP Paribas launched new indices that will enable institutional investors to make long-term contributions to the asset-class.

Banks have been building their commodities businesses in the past five years and many divisions have returned record performance this year. Barclay Capital was the first to launch an environmental markets product team in 2004, and last month formed a five-year commodities strategic alliance with China Development Bank focused on energy, metals and emissions.

Last month, Lloyd Blankfein, chairman and chief executive of Goldman Sachs, which is regarded as the top commodities trading house, said commodities had produced a fifth of its fixed income, currencies and commodities revenues in the past five years.

Credit Suisse and Merrill Lynch are boosting their commodities business through acquisition, which gives them expertise that would otherwise take years to acquire.