Andrew Hall's Astenbeck Commodities Fund II is all over the news today. This is because Mr. Hall's relationship with, and compensation from, Citigroup became controversial during the global financial crisis and because Mr. Hall apparently lost around 10% during this past May.

My interpretation of the thrust of the reporting is that we are being directed to conclude that Mr. Hall's feet are in fact made of clay, and that Citi did the right thing to purge itself of this business. Furthermore, commentary has suggested that we should attribute Mr. Hall's prior out-performance to the access to cheap funding from Citi and the use of innapropriate levels of leverage to enhance returns.

However, most hedge funds, as exhibited by common indices and also by the Dynamic Trading Risk Factor, can be assumed a priori to have lost money to some degree or other during the last month. So the fact that Astenbeck had a losing month this month is not interesting, although the size of the losses might be. I have estimated the historic returns of Astenbeck for analysis from publicly available sources, and the data is available from this blog.

Above is the summary chart from our now standard comparative analysis. With the small dataset available, let's propose two hypotheses to test:

1. Astenbeck has outperformed the typical fund i.e. α > 0; and,
2. Astenbeck uses excessive levels of leverage i.e. β > 1.

The null hypothesis for the both tests is that returns of the fund are entirely typical, which we can represent by the linear regression parameter set H₀:(α,β) = (0,1). From our analysis we see that Astenbeck does indeed have an alpha of (58 ± 92) bp/month. This is large, but for our small data set not sufficiently large to rule out the null. We find the beta of 0.90 ± 0.32 consistent with the null. In this case our precision is significant enough to rule out excessive leverage, as we can say with 99% confidence that β < 1.6. Compare this to the levels in the region of 3 and 4 we found for Goldman Sachs and Morgan Stanley.

In summary, based on the small dataset available, we conclude that Astenbeck's returns may exhibit an alpha, but that this is not proven from this dataset alone, and that the fund does not use use excessive leverage.

I will finished off by pointing out that I have no connection to either Mr. Hall or his company and that I am currently a shareholder in Citigroup. This analysis was performed purely because it is a topic of current interest and because it is interesting.