Ospraie in a corner (pg. 3)

"If you are marked to market every day, and your investors have short time frames," explains Rus Newton, who manages British hedge fund Global Advisors, which Ospraie had invested in, "then the risk is that, as John Maynard Keynes famously said, 'the fundamentals can stay irrational longer than you can stay solvent.'"

In one publicly disclosed example, Ospraie unloaded a 13% stake in Mineral Deposits, a company that extracts metals from sands, to Red Back Mining, a Canadian company with mines in Africa. But Ospraie got about half the listed price of the shares at their July peak, according to a press release from Red Back.

"Everybody could see that Ospraie was building a fairly big position in mineral sands companies," says Peter Ruxton, a trader at Actis, a British investment firm focused on mining. "As the market caught on, Ospraie was quite exposed when it tried to get out of its positions."

What ultimately pushed Anderson and Ospraie's board to decide to close the main fund was a commitment made back in 1999, when Ospraie first raised money. Anderson had promised that investors could get their money back if the fund fell more than 30% for the year.

Rather than wait for investors to besiege the firm, it decided to close the fund and promised to return 40% of investors' money immediately, 40% by the end of the year, and the rest when possible. The hope was to protect the fund from a panic, which would require selling valuable assets into an already down - and still dropping - market.

"There are many other [funds] who chose not to liquidate, and they're down way deeper," says an Ospraie investor. Indeed, the Morgan Stanley commodity related index of stocks dropped a further 54% in August and September.

As of early November, Ospraie had returned more than 50% of investors' money, leaving the main fund, which started August with $2.8 billion in assets, with, by Fortune's math, about $1 billion of assets still to be liquidated.

Anderson could have thrown in the keys, as dozens of hedge fund managers did this year. He didn't, and it would be a mistake to conclude that he is going away. Aside from the fund that Ospraie closed, the firm's fund-of-funds business had $2.5 billion, and its Special Opportunities fund had $1.2 billion, as of August.

"Dwight might differ with me on this," says Yusko, "but he's an investor, not a trader. Some people take offense at that, and I don't." Unfortunately, he went on, "most markets are traders' markets, not investors' markets."

And therein may lie the lesson for Ospraie. Anderson himself acknowledged that the time spent traveling between countries to understand physical markets, plus the hours it takes to manage a hedge fund as large and complex as Ospraie, was draining.

"[Our] style requires a lot of work to stay on top," he told an interviewer. It takes just as much work to steer funds through troubled markets. Some managers relish the toughest, most irrational markets: That's when they love to roll their sleeves up and get their hands dirty.

One vehicle that might reward a more patient style of investing is Ospraie's Special Opportunities fund, which Ospraie and its primary investor, Credit Suisse, started. It is a private-equity-style fund that buys stakes in companies that Ospraie hopes to grow over time.

Right now it's bankrolling alternative energy and agriculture. Earlier this year the fund co-invested in a $2.8 billion deal to buy the trading operation of ConAgra, which also owns dozens of grain elevators, and the operation was renamed Gavilon.

In late September a company Ospraie co-owns was selected to build a wind farm in Rhode Island. Surely even John Cusack's character from Say Anything could take pleasure in buying something like that. 

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