The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders Read Free Page B

of money they’d made. Andurand, who generated 209 percent returns in 2008, was in there too. But few hedge-fund traders were quite that accomplished. The rest of the commodity-trading hierarchy was topped by the large, multinational brokers involved in every single aspect of commodity harvesting and trading, from extracting the coal out of Colombian mines to hiring massive cargo ships to move them to Singapore while hedging the future price of coal as it was transported. Those companies, based largely outside of the U.S., had a long and sordid history of doing backroom deals with shady politicians, flouting international trade and human-rights laws, and engaging in tax dodges, pollution, even, allegedly, child labor. The big players in the industry were companies like Glencore and Trafigura, and their founding father was the American fugitive Marc Rich. Other parts of the commodity business feared their aggressive approach to business, given that they transacted with parties with whom the majority of the business world feared to work.
    But their scope and sheer manpower helped them understand tiny regional discrepancies in the price of oil and other goods, allowing them to source commodities more cheaply and sell them at a premium. That process generated tens of billions in profits. “This is off the record,” or at least it has to be anonymous, one industry analyst told me, before describing one of the companies, because he didn’t want the subject of his comments “to be blowing up my car.” Many investors and even other traders had reservations about the international trading houses. But thecomprehensive approach taken by Glencore and others, helped by a creative use of corporate regulatory havens, had given them elite status in certain commodity markets and made their executives exceedingly wealthy.
    Most hedge-fund traders sat somewhere in the middle of the totem pole. In the larger scheme of commodity trading, they were essentially money changers, pooling other people’s cash to try to outmaneuver the markets, placing bets on where prices would go, and skimming profits off the top of whatever they made when they were right—generally 20 percent of a year’s earnings and about 2 percent of the money investors gave them. A Frenchman who had socialist influences growing up, Andurand considered the physical oil business to be dirty and distasteful, and told me at one point he would never consider taking delivery of an actual barrel of crude. He was just a trader, and although he had an £11 million house near Harrods in London, a customized Bugatti sports car, and a gorgeous Russian wife, he would never attain the sort of riches and power that his counterparts in the corporate commodity logistics business would. He was a mere millionaire, not a billionaire.
    Still, Andurand had something others lacked: fearlessness. He traded billions of dollars’ worth of oil contracts in the markets daily, exposing himself to potential losses that many traders couldn’t stomach. Commodity hedge-fund traders talked often about their daddy issues and other insecurities and how they had learned to compartmentalize their financial woes without bringing them home at night. “My wife couldn’t tell you if I had a good day or a bad day—ever,” one Greenwich-based oil trader told me late in 2011. Andurand shared that thinking; he preferred tospend tens of thousands of euros on a bespoke wedding gown for his fiancée than to acknowledge his setbacks to her directly.
    The international banks that dabbled in commodities were lower in the pecking order. In better days, Goldman Sachs and Morgan Stanley took in more than $3 billion apiece in revenue from buying and selling oil, gasoline, copper, and other commodities. They arranged elaborate hedging strategies for airlines dependent on cheap jet fuel, charging fees for their advice along the way, and they lent capital to hedge-fund traders, pocketing interest and fees in return.