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Balyasny Is Building Physical Natural Gas and Power Business in Europe – BNN Bloomberg

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(Bloomberg) — Balyasny Asset Management is setting up a unit to trade physical natural gas and power in Denmark in a bid to generate more profit from its growing commodities business, people familiar with the matter said. 

The firm is still building out the portfolio and systems and registering itself as a counterparty to allow it to trade with entities including Transmission System Operators, one of the people said. The hedge fund plans to be actively trading and expanding in the space over the next 18 to 24 months, one of the people said.

Balyasny hired Kristian Junker as a senior portfolio manager to oversee the buildout, the people said. The firm, which manages about $21 billion in assets, has about 14 portfolio managers in commodities now, said one of the people, who asked not to be named because the information is private. A representative for Balyasny declined to comment. 

Natural gas and power trading has been a massive windfall for both merchant traders and multistrategy hedge funds such as Balyasny, particularly in the aftermath of Russia’s invasion of Ukraine. Citadel made more than $4 billion last year, driven in part by its merchant trading business, which handles physical natural gas and other commodities. 

Read More: Citadel Made More Than $4 Billion From Commodities in 2023

Physical trading allows firms to take advantage of more arbitrage opportunities by storing and transporting commodities, in addition to trading financial instruments linked to them. The businesses can also act as a natural hedge to financial trading, potentially reducing risks.

In Denmark, Balyasny added two people last year to plan a strategy to trade power. The country has become a major hub for power-trading firms such as Energi Danmark A/S and Danske Commodities A/S. Other funds, such as Qube Research & Technologies Ltd. are also exploring physical gas trading.

Balyasny began beefing up commodities about four years ago and hired Dan Deighton in 2022 to lead the effort. Commodities have since grown to be a key driver of returns across the firm and now make up about 12% of the fund’s capital allocation, one of the people said. 

The firm returned about 2.4% overall last year as wrong-way equity bets hurt performance while macroeconomic and commodity wagers produced gains, Bloomberg reported. Since inception, the firm has averaged about 12% annual returns, a person familiar with the matter said. 

Asia is also an area of focus for Balyasny. The firm has added natural gas and power traders and is expanding its metals business in the region, a major demand center for raw materials such as copper, iron ore and nickel. Balyasny has hired two portfolio managers in Hong Kong and Singapore, respectively, according to people familiar with the matter. One of them is Wei Jie Tan, who is in charge of the firm’s metals and bulks trading out of Singapore. 

The hedge fund giant trades metals derivatives, including for copper, platinum, nickel and European steel, the people said. It also trades bulk commodities, including iron ore. It doesn’t plan to trade physical metals, the people said.

The firm sees metals as more of a tactical trade than a bet on a long-term commodities super cycle, the people said, adding that the metals team has about eight people globally.

Last year, a series of metals traders left hedge funds including Balyasny as a lack of volatility meant funds had limited opportunities to profit. 

–With assistance from Anna Shiryaevskaya, Isis Almeida and Alfred Cang.

©2024 Bloomberg L.P.

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