Hedge funds reap a windfall by investing in specialized commodity markets

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Hedge Fund Updates

Hedge funds that expanded to British natural gas and German electricity made big gains this year thanks to the European energy crisis and sharp moves in specialist commodities markets, with one fund soaring from more than both fifths.

Leda Braga’s Man Group and Systemica Investments are among the companies whose best-performing portfolios have been well positioned to benefit from soaring gas prices in recent months, triggered by fears of a shortage of supply. In the UK alone, natural gas prices have risen from just under 60 pence per therm at the end of April to over 180 pence this month.

“The European energy complex is one of the strongest trends that I have seen in years, and I don’t even know if it’s over,” said Doug Greenig, former risk director of the AHL unit. from Man Group, who now runs the London-based company. Florin Court Capital hedge fund.

Its fund has grown by nearly 20% this year, according to a person who saw the numbers, having benefited from big moves in the European electricity and gas markets as well as other markets as diverse as shipping and urea.

This performance marks the fund’s best year since Greenig overhauled it in 2017 to focus on niche areas such as cryptocurrencies and Chinese peanut kernels rather than more traditional sectors.

Most hedge funds in the so-called managed futures industry use algorithms to try and adapt to trends in traditional futures on bonds, currencies, stocks, and commodities. But the industry has grown from $ 30 billion two decades ago to over $ 300 billion today, according to data provider HFR.

In turn, this growth has led some managers, including Florin Court, to seek out less crowded markets that are more likely to be driven by fundamental supply and demand in their industries.

Beyond gas prices, changing dynamics in other markets have also benefited commodity investors who have focused on less popular markets. As lumber and iron ore soared in the first half of the year, driven by supply chain bottlenecks and rising global demand as economies reopen, they have since fallen sharply. The funds were able to benefit from both rising and falling prices.

Gresham Investment Management is another big hedge fund winner this year. Its ACAR fund, which trades around 100 alternative commodity markets, is up around 43%, having benefited from movements in the European electricity and carbon credit markets, as well as coke, coking coal and of iron ore in China.

“This year is quite exceptional in terms of strength, consistency and duration of trends,” said Scott Kerson, head of systematic strategies at Gresham.

“We want to be invested in markets where the underlying production and consumption decisions determine the price,” Kerson added. “We don’t want to be invested in an arms race” with other quantitative funds, he added, referring to his decision to invest in smaller markets.

Man Group’s AHL unit, one of the early pioneers of quantitative investing in specialist markets, also performed well. Its $ 4.6 billion Evolution fund is up about 15% this year. Its smaller Evolution Frontier fund, which trades assets such as milk, butter and African currencies, gained around 35%, according to figures sent to investors.

Meanwhile, Systematica’s $ 4.8 billion alternative markets fund is up 22.7%, said a person who had seen the numbers, with gains also coming from EU carbon credits. and Chinese iron ore. Aspect’s Alternative Markets fund gained 20 percent and also profited from commodities such as German electricity and lumber.

Betting in less actively traded markets can be expensive and complicated, especially when it comes to shipping.

However, charter rates have skyrocketed with soaring commodity prices and rebounding economies. This has helped funds such as Paralos Asset Management, a shipping specialist, to grow by more than 60% this year.

“There are changes in the supply chain and the world in general is moving towards a new equilibrium,” said Greenig of Florin Court, highlighting the “amazing” trends in charter prices on routes such as the Middle Orient towards China.

“The expedition was crazy,” he said.

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