Flying like a Led Kite

Red Kite's Lilley Says Copper Will Rebound on Demand By Xiaowei Li Jan. 23, 2007

David Lilley, a partner at Red Kite Management Ltd., which has base-metals hedge funds worth more than $1 billion, says copper prices will rebound on rising industrial and housing demand in China and the U.S.

The metal has tumbled far enough from an all-time high last May to have reached "fair value," and investors should buy now, Lilley, 40, said in an interview Jan. 20 in Shanghai.

Red Kite was founded two years ago and is also run by Michael Farmer, a former head f the world's largest copper trading unit, MG Metal and Commodity Co., where Lilley worked. The company has two funds, one actively traded and which is not raising new money, and a second, longer-term fund that was started in November and remains open, Lilley said.

"We started with $50 million in January 2005," he said, adding: "We now have over $1 billion...."

Lilley, at a conference in Shanghai on Jan. 20, said copper consumption in China has grown at an average of 16 percent a year for the past six years, and the trend may continue. "I think the pressure on copper prices has probably peaked," Lilley told the conference. Rising Chinese imports and a strengthening U.S. housing market will support prices "in the first quarter."

"It is a good time to buy."

Zinc, Copper Plunge After WSJ Report of Losses at Red Kite Fund By Millie Munshi and Pham-Duy Nguyen Feb. 2, 2007


Zinc plunged the most in nine years and copper dropped to a 10-month low, fueled by a report of losses by metals-trading hedge fund Red Kite Management Ltd.

Red Kite's $1 billion fund lost 20 percent in the year to Jan. 24, the Wall Street Journal reported, citing an "unofficial estimate" the fund gave to one investor.

"The fear is that it's an Amaranth" Advisers LLP, the hedge fund that lost $6.6 billion last year on natural-gas trades, said Michael Guido, director of hedge-fund marketing at Societe Genearle SA in New York. "The problem is that we don't know how serious it is, and uncertainty breeds liquidation."

Red Kite's performance in January was the worst for any month in at least a year, the Wall Street Journal said today, citing an investor who saw the fund's results. One of Red Kite's funds last year gained more than 190 percent betting on metals, the newspaper reported.

David Lilley, who co-founded Red Kite with Michael Farmer and Oskar Lewnowski III, declined to comment when contacted by Bloomberg. Farmer wasn't available to comment on the Wall Street Journal report.

"There's absolutely no reason for metals to fall this way," said Michael Metz, chief investment strategist at Oppenheimer Holdings Inc. in New York. "The decline reflects the stress on one or more leveraged players. When the locals smell a catastrophe, they liquidate. In my opinion, it's a good time to buy."