WEST PALM BEACH, FL (www.hedgeco.net) – Hedge funds are increasingly drawn into the weather derivatives market according to new reports. Such instruments may be traded as a non-correlated play, or asa new investment strategy. Several hedge funds including Citadel Investment Group is said to be gearing up to begin trading such market in 2005.
Other hedge fund managers like, D.E.Shaw & CO began trading the weather derivatives market in October 2004. Citadel has confirmed such plan but the company did not provide further details. According to published news reports, the former CEO of XL Weather & Energy, Jeff Bortniker have already launched a new hedge fund firm called Pyrenees Capital Management.
Bortniker was joined by two other partners in putting the fund together, the new vehicle based in Stamford, Connecticut will be concentrating in trading weather derivative markets. The director of Evolution Markets, an advisory and brokerage service firm said, the weather markets have shifted away in some measure from concentrating around energy firms since the fall of Energy giant Enron Corporation.
Knowledgeable sources say hedge funds are drawn to energy markets to enable them to spread exposure. The way the process works according to Ernst is that some hedge funds may buy a weather derivative product as a way of hedging against the occurrence of a warm weather. Ernst himself, who has positions in natural gas, may also buy a weather derivative as a hedge against the occurrence of warm weather.
It is uncertain how big the weather market may be, and how many hedge funds may be participating in such trading.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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