Former Balyasny Asset Management trader Zulfiqar Ali is positioning his London-based hedge fund ZAMS Asset Management to capitalise on market dislocations that he expects to emerge as a strengthening El Niño reshapes weather patterns and energy markets, according to a report by Bloomberg.
Ali, the firm’s founder and chief investment officer, believes the climate phenomenon could create an unusually fertile environment for energy commodities strategies later this year as its effects become more pronounced.
ZAMS, which manages about $350m, gained 5.7% in August and is up 13% for the year so far, according to Ali. The 34-year-old Cambridge mathematics graduate launched the firm two years after leaving Balyasny.
The fund employs around six traders, quantitative specialists and weather strategists who combine energy futures analysis with data from weather models. ZAMS purchases forecasts from specialist providers including MetDesk and supplements them with its own analysis in an attempt to identify discrepancies between expected weather conditions and market pricing.
Power futures account for roughly 80% of the firm’s profits, according to Ali, who regards El Niño as a particularly important market driver through this year and into early 2027.
ZAMS typically maintains between 25 and 30 positions and holds trades for around eight days on average. Ali says the strategy enabled the firm to anticipate some of the impact on European power markets from disruptions at French nuclear plants during the summer, when high temperatures and low river levels affected conditions.
The strategy also demonstrates the risks involved in attempting to trade weather-related market moves. Earlier this year, ZAMS was short French and German electricity contracts based on expectations surrounding the transition from La Niña to El Niño. When wind generation subsequently weakened and available supply fell, wholesale power prices rose sharply.
The resulting move left the fund facing its worst month of the year, with Ali saying markets moved about 30% against the positions.
The transition from La Niña to El Niño occurred earlier than ZAMS had anticipated, with the shift beginning in May rather than later in the year as consensus expectations had suggested. Ali said the development caught the firm off guard.
Despite that setback, he continues to regard the El Niño cycle as a significant macroeconomic theme. The strategy reflects growing interest among alternative asset managers in incorporating weather data into investment decisions as climate conditions increasingly affect commodities, inflation and economic activity.
