Plenum Hedge Fund Gains 19% on Arctic Weather Outlook

Date: Tuesday, March 23, 2010
Author: Bloomberg

Plenum Power Surge, the hedge fund managed by Plenum Investments AG in Switzerland, returned 19 percent in the first two months of the year after betting on an increase in Scandinavian electricity prices.

Prices in the Nordic electricity market, where Plenum has 68 million euros ($92 million) invested in two funds, jumped to records as temperatures reached the lowest since 1987 in Sweden, and consumption rose to a record in Norway, forcing industrial consumers to reduce demand to prevent blackouts.

“To put it simply, we were bullish on the weather,” Henrik Wennberg, a portfolio manager, said in a telephone interview from Zurich. “We saw this already in the middle of December and started buying then to take long positions.”

The company’s view was confirmed in January, and Plenum held the contracts until the market peaked late last month, he said. The second fund, Plenum Power Fund, returned 6 percent in the first two months of the year, said Wennberg, who has traded power for more than 11 years.

Nordic next-day power rose to a record 134.80 euros a megawatt-hour for delivery on Feb. 22, exceeding the 114 euro record from January 2003, according to data from the Nord Pool Spot AS, where 70 percent of the region’s physical consumption is traded. Those day-ahead prices also pushed up longer-dated contracts to the highest since they started trading in the euro on Dec. 1, 2005.

‘Right Time’

“It’s been extremely volatile, and that’s been the challenge for many traders,” said Wennberg. “Even if you were bullish, it was difficult to bring home the money because it’s been difficult to buy at the right time.”

Hydropower and nuclear energy are the biggest sources of power in the Nordic market, which includes Sweden, Norway, Denmark and Finland.

Prices may decline as reservoirs start to fill up during the spring flood period ending around the middle of May, Wennberg said.

As high prices this winter led to a so-called backwardated market, where producers get more money to produce power sold now rather than later, generators used up much of their water reserves instead of saving them for later, Wennberg said.

This has led to a historical shortage that may not improve this summer, he said. “We will probably enter autumn with a huge hydrological deficit,” which may drive up prices, Wennberg said.

Commodity hedge funds returned, on average, almost 1 percent last month and lost 2.2 percent in the first two months of the year, according to Chicago-based Hedge Fund Research Inc. Hedge funds are mostly private pools of capital whose managers participate substantially in the profit from speculation on asset prices.