Former Enron Trading Trio Gains as Winter Heating Demand Surges

Feb 11, 2014 8:52 am ET

Feb. 11 (Bloomberg) -- Three former Enron Corp. traders saw returns jump more than 15 percent in January at their year-old hedge fund as natural gas and electricity prices soared with frigid weather.

Fletcher Sturm, Robert Benson and Frank Ermis, each with 20 years of trading experience, formed Cogent Energy Investment Management LLC in Stamford, Connecticut, to invest exchange- cleared gas and electricity contracts based on fundamental analysis.

Cogent’s net return of 15.44 percent in January followed an increase of 10.76 percent in 2013, according to a letter to investors yesterday sent by Sturm via e-mail. Assets under management totaled about $48 million at the end of January after growth and new investment, said Sturm, a principle of the fund.

“We wanted to recreate the model of the way we traded in the market in the past,” Sturm said in a telephone interview. “We’ve been talking about it ever since Enron went bankrupt.”

The fund’s three principals reunited as gas prices started to rebound from a 10-year low in 2012 amid record production. An unusually cold start to the current heating season followed by the coldest January in 20 years sent stockpiles tumbling.

“The market has found a way to increase demand to catch up to the increase in supply that’s occurred over the past few year,” Sturm said. “We think there will be more opportunities, more volatility.”

Futures Market

Gas futures for next-month delivery rallied 17 percent in January after jumping to $5.725 on Jan. 29 on the New York Mercantile Exchange, the highest intraday price in four years. Prices gained 26 percent in 2013. Gas this year has been the most volatile component of the Standard & Poor’s GSCI index of 24 commodities, averaging 79.06 percent versus 31.64 percent in all of 2013.

Cogent tends to focus on gas and power in the first six to 12 months of the forward curve and “captured a couple of the big moves” last year, Sturm said. “We are used to extreme volatility, having traded this market for 20-plus years. We’ve seen natural gas trade $1 and we’ve seen it trade $13.”

Benson, Ermis and Sturm focus most of their attention on Nymex natural gas futures. The firm also trades price differences between regional gas hubs for the West, mid- Continent and some in the Northeast. Power trading includes grids in the U.S. East and Texas.

“We have a very good idea of what demand should be for each month, what the supply forecast is and then we can tell if the market is tightening or loosening,” he said.

--Editors: Bill Banker, David Marino