Here’s a piece of news that we didn’t hear about in 2012, the two Cumulus Funds which were owned and operated by investment firm PCE Investors in London, have been bought and ownership transferred to London-based investment firm City Financial Investment Company back in October. The funds offer investors a weather risk investment opportunity, with one focusing on investments in weather risk management instruments and the other using them to optimise an energy portfolio.
The two funds, the Cumulus Fahrenheit Fund, which focuses exclusively on weather derivatives concentrating on the CME products, and the Cumulus Energy Fund, which uniquely applies weather derivatives expertise to the European energy and emissions markets and the operational infrastructure and staff of PCE were transferred to City Financial in the sale.
The Cumulus funds now sit under the City Financial Investments Company umbrella and Peter Brewer, who launched the two funds at PCE, remains in charge of their day-to-day management. Brewer is a very well-known figure in the weather risk management community having been involved in the sector since the late 1990’s and having sat on the board of the Weather Risk Management Association for a term.
In a similar fashion to insurance-linked securities and reinsurance-linked investment funds, the Cumulus funds enable investors to access a niche asset class (weather or weather optimised energy portfolios) and profit from non-correlated returns. The Cumulus funds offer a rare chance to invest in the weather market these days as many funds have lowered exposure to weather instruments in favour of catastrophe risk.
Back in 2009 we wrote that the Cumulus Energy Fund had profited by cleverly managing weather risks associated with their energy portfolio, delivering a very impressive return. According to this article on Bloomberg, the energy fund appears to have done the same again, leaping 39% in December alone after making an investment that forecast German electricity prices would drop. The fund gained 24% over the course of 2012 and has returned 400% since its inception in 2006. Peter Brewer wrote in an investor circular letter; “The main driver was a very large gain from German power, where extremely bearish weather caused a complete collapse in spot prices over the Christmas period.”
So it would seem that Cumulus are extremely adept at making energy investments in tune with weather forecasts and are likely covering positions with weather hedges as well. We don’t know how their weather derivatives fund performed at this time.