Peter Brewer previews the investment process for the Cumulus Energy Fund which is scheduled for launch in October 2006.
HW: What is the background to your fund?
PB: We are launching the Cumulus Energy Fund in October 2006, based on on our successful Cumulus Weather Fund energy trading strategy. The new fund will focus on energy trading - futures, swaps and options - especially European power and carbon emissions. The Principals are myself (Peter Brewer )and Dr Joaquin Narro and the initial capacity will be USD 75m.
HW: Who are your service providers?
PB: Accountants: PwC; Law firm: Walkers; Administrator: Citco; Prime broker: Goldman Sachs.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
PB: Diversified across fund-of-funds, family offices and HNWI; through Europe, North America and globally.
HW: What is the investment process of your funds?
PB: We apply our proprietary fundamental models to identify opportunities.
We apply our superior interpretation of weather forecasts to identify catalysts.
We open positions only when fundamental and weather signals are aligned.
HW: How do you generate ideas for your fund?
PB: We continuously monitor our proprietary blend of external weather forecasts and our proprietary fundamential models (along with market prices, external analysis and news flow).
HW: What is your approach to managing risk?
PB: We are very focused on managing risk:
- We buy tail options to avoid large drawdowns;
- We apply a stop loss policy;
- We typically hedge directional risk through calendar spreads, geographic spreads and cross-asset spreads;
- We use our experience to avoid noisy situations; and
- We monitor our risk through various statistical and fundamental exposure metrics, as calculated by our risk systems
HW: Has your performance been as per budget and expectations? (If new launch, detail results of back-testing). Do you expect your performance or style to change going forward?
PB: Performance has been above expectation despite difficult market conditions. We expect to maintain high performance.
We continue to invest in research and development to ensure we stay one step ahead of the competition, but do not expect material style changes.
HW: What opportunities are you looking at right now?
PB: We currently see excellent opportunities across many energy markets, for example in several European electricity markets.
HW: What events do you expect to see in your sector in the year ahead?
PB: We expect the unexpected, i.e. we expect a good flow of opportunities but we also believe it is important to protect the downside since energy market volatility can be difficult to predict.
HW: How will these changes/future events impact on your own portfolio?
PB: We reposition the fund actively (with an average holding period of 1 month) in response to evolving market conditions.
We will continue to buy tail options to protect against extreme moves.
HW: What differentiates you from other managers in your sector?
PB: We are primarily differentiated by our performance, although our effective hedging of tail risks, our unique edges, and our focus on European 'downstream' markets (such as electricity and carbon emissions) also help us stand out from the crowd.
HW: Do you have any plans for similar/other product launches in the near future?
PB: Not in the near future