The rise and fall of Chocfinger…….

 

Anthony Ward, a British commodities trader who set up a hedge fund specialising in chocolate, earned himself the nickname Chocfinger, by analogy with the Bond villain Goldfinger, who tried to take control of US gold reserves.

Chocfinger didn’t go as far as his namesake, but he did have many years’ experience in trading cocoa and at one point even set up weather-forecasting stations in one of his company’s main areas of activity, Sierra Leone, to try and predict the cocoa harvest. Chocfinger ended up controlling a significant fraction of the world’s supply. At the peak of its activities, his fund, Armanjaro Trading, owned a remarkable 15 percent of the supply of cocoa.

Even more amazingly, at one moment in 2010, Armanjaro took physical delivery of 241,000 tons of cocoa beans. That’s an extraordinarily unusual thing to do in the commodities world, which is all about making money by trading futures and options. It must have been a memorable moment at the office:
“Oi Chocfinger, there’s someone asking for you at the door. He says he has 7 percent of the planet’s cocoa beans and wants to know where to put them.”

That one transaction left Chocfinger with enough cocoa to give everybody in the world three Mars bars each! In May 2012, the investment arm of the World Bank—which knows what it’s doing, you’d have thought—bought a 6 percent stake in Armanjaro Trading, which implied a valuation for the company of between £200 million and £300 million. In 2013 the price of cocoa beans spiked upward, thanks to bad weather in one of the main growing areas, Sierra Leone. Surely good news for Armanjaro Trading, whose whole shtick concerned buying lots of cocoa, yes? Well, at the end of 2013, the fund was sold for guess how much? Go on, have a guess.

Answer: £1. Less than the cost of a single one of those Mars bars.

What happened? It’s impossible for an outsider to know for sure, but if you’re a hedge fund, and you own a lot of something, and plan to sell it, you will hedge your position and try to make money if the market moves against you. If you get the hedge wrong, and prices move outside the limits you’ve allowed for, you can end up losing a lot of money. It seems that something like that happened to Armanjaro. So remember boys and girls, just about all hedge funds close or go broke; this is just an unusually vivid example.

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