Much of the trading team behind the long-standing Cumulus weather and energy investment funds are transferring over to investments and hedge fund giant Citadel LLC, as the Cumulus funds are being shuttered, according to a report from Bloomberg.
Citadel, which manages roughly $28 billion in its range of fund strategies, has reportedly hired Cumulus founder Peter Brewer, a well-known figure in the weather risk management and trading world, having worked in the sector since the late 1990’s and even sat on the board of the Weather Risk Management Association for a term. The Cumulus funds were originally launched by Brewer in 2006.
Along with Brewer, a team of around 20 traders and analysts from Cumulus have also been hired by Citadel LLC, according to Bloomberg, which could herald the investment giant looking to build a specialism in weather focused energy and climate related trading strategies.
Cumulus used to operate two funds, the Cumulus Fahrenheit Fund, which focused exclusively on weather derivatives and largely traded products listed in the Chicago Mercantile Exchange (CME), and the Cumulus Energy Fund, which followed a strategy of applying weather risk management and derivatives expertise to the European energy and emissions markets.
The Cumulus Energy fund strategy was particularly successful in the past, with subsequent years where its returns ran in double figures, although we understand the strategy had suffered in recent years due to atypical European winter weather, something which had also hit reinsurance firms and ILS funds investing in weather risk instruments.
Ownership of the Cumulus funds had transferred to City Financial Investments Company in 2012, as the London-based asset manager saw the attraction for its investors in a niche asset class (weather risk and weather optimised energy portfolios) that offered them a chance to profit from non-correlated returns.
The hires made by Citadel include people involved in the analysis of weather, research and trading, and will be tasked with trading energy instruments, but with a weather informed edge, we understand.
Sebastian Barrack, who leads the commodities trading team at Citadel LLC, told Bloomberg, “Attracting exceptional talent has always been the cornerstone of Citadel’s long-term success. We’re excited to add these individuals to our platform.”
The report states that the Cumulus funds are being wound down and capital will be returned to investors.
The strategy of trading energy assets informed by the weather and creating portfolios of energy exposures which are optimised according to the weather had been extremely profitable for Cumulus in the past.
For Citadel, which has pitched itself as a technology informed investor in recent years, the application of weather risk management and trading techniques in its energy trading could help it to attract additional inflows of capital and the weather risk expertise could also help the asset manager launch other climate risk related strategies to its clients.