Louis Dreyfus Highbridge Plans Commodity Hedge Fund

By Saijel Kishan

Dec. 4 (Bloomberg) -- Louis Dreyfus Highbridge Energy LLC, the trading venture of Highbridge Capital Management LLC and Louis Dreyfus Group, plans to start a commodities hedge fund next year, according to four people with knowledge of the plan.

UBS AG is considering investing in the fund, said two of the people, who declined to be identified because the plans are confidential. Brooke Harlow, a spokeswoman for New York-based Highbridge, and Sarah Small, a UBS spokeswoman in London, declined to comment.

Commodities are outperforming stocks and bonds this year as prices for oil, wheat and other natural resources rise to records, luring investors. Money held in commodity hedge funds has grown to $55 billion this year from $14 billion two years ago, according to Chicago-based Cole Partners Asset Management LLC, which invests in such funds.

``There's plenty of appetite for commodities exposure at the moment,'' said David Krein, president of New York-based DTB Capital, which advises clients on investing in hedge funds. ``We're still in the early stages of demand, and given that commodities appear more volatile than stocks and bonds, there's plenty of opportunities for hedge funds.''

Highbridge, the manager of more than $30 billion, bought a stake of more than $1 billion in the energy unit of Paris-based Louis Dreyfus in January. The venture hired Bill Reed from Houston-based energy hedge fund Saracen Energy Partners LP as head of trading for the fund, and he starts in January, according to one of the people.

UBS Losses

UBS, based in Zurich, posted its first quarterly loss in almost five years on Oct. 30 after the U.S. housing slump caused it to write down about $4.4 billion on fixed-income securities. In May, the bank shut the Dillon Read Capital Management LP hedge fund run by John Costas because of losses attributed to the U.S. mortgage market.

JPMorgan Chase & Co. in 2004 bought a majority stake in Highbridge. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

The UBS Bloomberg Constant Maturity Commodity Index of 28 futures contracts has returned 18 percent this year, compared with a 3.4 percent gain in the Standard & Poor's 500 Index of stocks. U.S. Treasuries have returned investors 9.4 percent, according to Merrill Lynch & Co. indexes.

To contact the reporter on this story: Saijel Kishan in London at skishan@bloomberg.net