Betting on Nordic Rain Pays Better Than Average Hedge Fund
Jesper Starn, Bloomberg
Fri Jan 27 2017.
- Danish manager made 15 percent, 5 times commodity fund index
- Power price swings in abnormal weather behind returns
Getting the weather right was key to Nordic electricity investment companies posting bigger returns than most hedge funds last year.
Nordic Power Trading in Kolding, Denmark, led gains with a 15 percent return, followed by Shepherd Energy Portfolio in Stockholm on 14 percent, according to reports on their websites. That’s more than five times the global hedge fund industry’s average gain last year, according to Hedge Fund Research Inc.
Low hydropower reservoirs and forecasts for a cold winter pushed up wholesale Nordic power prices by 71 percent between September and November before unusually wet and windy weather caused rates to plummet in a region that typically gets more than half its electricity from water. The price swings spurred the first annual increase in trading volume at the world’s oldest electricity market in eight years.
We focus a lot on the weather and the important hydrological balance to find the right combination of risk and reward,” said Lina Petrell, the chief operating officer of Shepherd Energy AB. “With only a small adjustment in one of our strategies after the summer we managed to be on the right side of the price movements.”
Another Shepherd Energy Nordic power investment program, the Power Series fund, gained 4 percent. Including the Shepherd Energy Portfolio, they have about $15 million of assets under management.
While Nordic Power Trading with $12.8 million of assets rose last year, it couldn’t match its 31 percent gain in 2015. Bjarne Walbech, the manager of the fund, declined to comment on his strategy.
Hedge fund returns worldwide rose 2.5 percent on average last year, the HFRXGlobal Hedge Fund Index shows. Commodity-related funds increased 2.9 percent, according to the SG Commodity Trading Index.
Not all Nordic power investment vehicles had a good year. Sector Asset Management’sEuropower fund in Oslo lost 11 percent after returning 9.7 percent in 2015, according to a report on the company’s website. Thor Lien, an investment manager at Sector, wouldn’t immediately comment when reached by phone on Friday.
The volume of financial power contracts traded and cleared on the Nasdaq Commodities exchange in Oslo rose 8 percent to 1,432 terawatt-hours, the most since 2014.
Prices for the 2017 contract peaked at a three year high of 32.80 euros ($35) per megawatt-hour in November amid a 25 terawatt-hour deficit in the Nordic hydro balance, according to Shepherd Energy. The current next-year contract traded at 22.20 euros on Friday amid an estimated deficit of 12 terawatt-hours.
Slumping prices and low volumes in previous years has meant the number of Nordic power fund managers has fallen since 2014, when at least six investment programs were active with more than $110 million of combined assets.