In 2025, hedge funds specializing in commodities trading experienced more challenges than successes, as their returns lagged behind many other investment categories. Various factors converged during the year to create a nuanced and volatile environment for commodity prices and trading strategies.
The turmoil in the Middle East contributed substantially to sharp fluctuations in oil prices, introducing a heightened level of uncertainty into energy markets. At the same time, the tariff policies implemented by former President Donald Trump, which were often uneven in their application, produced erratic movements in agricultural commodities prices, notably affecting crops like soybeans. These external influences combined to unsettle commodity markets throughout the year.
Adding to the complexity, the rapid increase in demand for electricity by artificial intelligence (AI) data centers has transformed energy consumption outlooks in unforeseen ways. Even leading investors within the energy and commodities sectors have expressed uncertainty regarding future electricity demand trends due to the AI industry's evolving footprint.
Collectively, these factors contributed to subdued performance for commodity hedge funds in 2025. According to data from hedge fund research firm PivotalPath, the average return for commodity-focused hedge funds was approximately 2.2% through November, markedly trailing the broader hedge fund industry average which stood at around 10.7%.
Among the notable managers facing difficulties was Pierre Andurand's eponymous fund, a prominent name in commodities investing. Reports from Bloomberg highlighted significant losses exceeding 50% in the first half of the year attributable to trades related to cocoa. Additionally, Citadel, often recognized for its strength in natural gas trading and broader commodities strategies, found its flagship fund underperforming relative to peers for much of the year, an unusual deviation given its historical profitability.
Meanwhile, Millennium's commodities division, which is led by former Goldman Sachs executive Anthony Dewell, encountered internal upheaval with the departure of multiple senior portfolio managers, as earlier reported by Business Insider. Nevertheless, specific returns for this unit in 2025 have not been publicly disclosed.
Despite these setbacks, commodities remain a sector of strategic interest and planned growth among hedge fund firms. Growth in asset bases at multi-strategy firms—traditionally rooted in quantitative, equity, or fixed-income trading—has heightened the impetus to diversify into new markets, including physical commodities. This particular segment involves trading actual goods requiring physical handling, storage, and transport, a practice historically dominated by specialist funds and large energy corporations such as BP and Shell.
Industry analysis from data provider With Intelligence forecasts that physical commodities will emerge as a leading diversification avenue in 2026. Both established players and emerging fund managers are expected to intensify searches for alpha opportunities that are less accessible through quantitative trading methods.
Multiple sources indicate that Steve Cohen's Point72 may expand its activities to include commodities trading, as relayed to Business Insider by several individuals familiar with the firm, though the firm has not officially commented on these plans. Furthermore, Balyasny Capital operates through a presence in a Danish port city engaging in physical commodity trading, while Jain Global allocated approximately 13% of its risk portfolio to commodity positions as of mid-year.
The trend extends throughout the hedge fund industry. Verition has bolstered its energy trading team by bringing on several portfolio managers specialized in this area during 2025. London-based quantitative firm Qube marked its initial entry into the U.S. market with a base in Houston, a pivotal hub for energy trading. Similarly, Squarepoint, another quant-driven rival, expanded efforts to include physical metals trading in the current year.
Even leading commodity traders such as Citadel and Millennium are moving to deepen their engagements. Citadel completed acquisitions including German energy trader FlexPower, senior trader hires in Australia, and following its 2024 purchase of Japanese power trader Energy Grid Corporation, the firm acquired natural gas assets from Paloma in the Haynesville Shale region spanning northern Louisiana and eastern Texas. This acquisition cost about $1 billion and resulted in the creation of Apex Natural Gas, a wholly owned Citadel subsidiary. Apex further expanded by purchasing natural gas properties from an energy firm linked to billionaire Dallas Cowboys owner Jerry Jones, as reported by Bloomberg.
Millennium continues to support new commodity hedge fund startups, particularly in Paris and Singapore, while allocating capital to external teams specializing in this field.
According to the With Intelligence report, multi-manager funds promote themselves as dependable sources of low-beta returns, emphasizing that the current inefficiencies observed in commodities markets present substantial opportunities to generate diversified alpha. This is particularly relevant given the ongoing market shifts and the differentiated nature of physical commodity trading, which offers pathways distinct from conventional quantitative approaches.