John Arnold closes Centaurus hedge fund after 10 years

Closing comes as natural gas prices hover near 10-year lows

Closed sign Closed sign

May 2 (Bloomberg) -- John Arnold, the hedge-fund manager who became a billionaire betting on natural gas prices, said he’s closing his Centaurus Energy Master Fund “to pursue other interests.”

“In the past 10 years, we have achieved more success than I could have hoped for or imagined,” Arnold said in a letter obtained by Bloomberg News. “We achieved outstanding returns for our investors -- often in the triple digits -- while having the discipline and rigor to stay true to our core investment focus.”

Arnold shuttered Centaurus as natural gas prices hover near 10-year lows, stifling returns. It’s the second major energy hedge fund to close in the last month. BlueGold Capital Management LLP, the $1 billion fund co-founded by Pierre Andurand, said April 5 it’s liquidating after losing 34 percent last year.

Arnold, 37, left Enron as the energy company collapsed in 2002 and founded Houston-based Centaurus with three employees and $8 million of his own money, according to a 2006 report from the U.S. Senate Permanent Subcommittee on Investigations, which cited a New York Times story. The fund gained fame betting against Amaranth Advisors LLC, a hedge fund that collapsed in 2006 after losing $6.6 billion on bad bets in the natural gas market.

Arnold didn’t return calls or e-mails today seeking comment.

By 2009, Centaurus employed 70 people and had $5 billion under management, according to Arnold’s testimony that year before the Commodity Futures Trading Commission.

‘Legendary’ Investor

“‘Legendary’ is the correct term in his case,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, in a phone interview today. “There are contenders and pretenders, and he was a contender.”

It became harder to make money as natural gas production rose to a record, swelling supplies to all-time highs, Kilduff said.

Marketed gas production reached a record 66.22 billion cubic feet a day in 2011 and may rise another 4.5 percent this year, according to Energy Department estimates. Inventories rose to 2.548 trillion cubic feet the week ended April 20, 55 percent above the five-year average, the Energy Department reported last week.

Natural gas prices slid 11.8 cents, or 5 percent, to settle at $2.253 per million British thermal units on the New York Mercantile Exchange. It was the biggest drop since May 5. Futures have declined 25 percent this year, making gas the worst performer on the Standard & Poor’s GSCI Index of 24 commodities.

‘Immensely Proud’

“I am immensely proud of what we created,” Arnold said in his letter today. “However, after seventeen years as an energy trader, I feel that it is time to pursue other interests.”

Arnold and his wife, Laura Arnold, established the Laura and John Arnold Foundation and have joined The Giving Pledge, which encourages billionaires to give more than half of their wealth to charity, according to a letter on the group’s website.

“We are deeply indebted to our community and our country for the many opportunities granted to us, and for a social and economic environment in which we could make the most of those opportunities,” the couple said in the letter.

Bloomberg News

--With assistance from Saijel Kishan and Christine Buurma in New York and Alexander Kwiatkowski in Singapore. Editors: Alexander Kwiatkowski, Christian Schmollinger

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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