Tiny hedge funds gained as much as 500% last quarter as their bets against US shale paid off

• Three small hedge funds posted big gains last quarter as their bets against US shale producers paid off.
• Kalkriese Capital Partners gained 300%, Exo Trading gained 500%, and Saltstone Capital gained 36%, according to Bloomberg.
• The funds wagered that shale suppliers were bound to struggle due to their high debt levels and hefty costs.
• "This is just ripping the Band-Aid off," Exo chief Chris Bird told Bloomberg.
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A trio of tiny hedge funds scored huge gains last quarter, as plunging oil prices meant their bets against the US shale sector paid off.

Kalkriese Capital Partners gained 300%, Exo Trading gained 500%, and Saltstone Capital gained 36%, according to Bloomberg. The funds, which manage less than $40 million between them, took positions against US shale producers due to their lofty debt levels and greater costs than offshore rivals.

"Shale works at a certain price," Chris Bird, head of Exo Trading, told Bloomberg. "For the most part, historically, that price was probably $75 a barrel."

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Kalkriese, Exo, and Saltstone's wagers paid off after authorities halted global travel and shut down multiple industries to slow the spread of the coronavirus pandemic, slashing demand for oil.

Saudi Arabia, Russia, and other producers also waged an oil-price war after failing to strike a deal to reduce output, fueling a supply glut and pushing prices lower.

The upshot was a nearly two-thirds decline in West Texas Intermediate, the US crude benchmark, to about $21 a barrel last quarter. The decline sparked a sell-off of shale stocks, with the SPDR S&P Oil and Gas Exploration and Production ETF falling 65%.

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The downturn was inevitable given the sector's weaknesses, Bird told Bloomberg. "This is just ripping the Band-Aid off," he said.

The funds could see further gains this month, given WTI was trading below $11 at the time of writing.