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Alternative Market Briefing

Texas hedge fund expects further volatility in energy markets

Wednesday, June 29, 2022

amb
Gerald Balboa
B. G., Opalesque Geneva:

The war in Ukraine has generated a sharp increase in energy prices and significant volatility in European energy markets. Asia-Pacific economies are facing an energy crisis that threatens to worsen in coming months and reach historic proportions if the war continues. Coordinating with the International Energy Agency, the G7, during their 26-28 June annual summit, said they would explore measures to reduce price surges and prevent effects to economies and societies globally. But the consequences of sanctions and potential price caps have yet to be fully comprehended.

From the perspective of Skylar, an energy-focused hedge fund, a heightened level of volatility in the energy markets should be the norm over the next 12 months and potentially beyond that. Depending on how various fundamental factors evolve, natural gas prices could test both the high and low prices seen in the last 12 months, thus creating great trading opportunities for its strategy, which is up 182% YTD.

Skylar Capital Management LP is a hedge fund management firm located in Houston, TX, focused on the natural gas and power markets. The founder, William O. Perkins III, has over 30 years of experience in trading and risk management. He launched Skylar in 2012 after a successful tenure as a senior portfolio manager at Centaurus Energy, a multi-billion dollar hedge fund.

Gerald Balboa, who has 30 years of experience in the energy markets and has been the COO and the CCO at Skylar since 2012, will present at the Small Managers - Big Alpha episode 9 webinar on July 7th, and talk about the anticipated natural gas production growth, natural gas storage expectations, power demand and the role natural gas plays in meeting power demand.

The fund

Skylar Capital Energy Global Master Fund, LP invests in energy with an emphasis on global natural gas and power. The $200m fund, incepted in September 2012, is up 182% YTD after returning 18% in May, and 107% in 2021. It has had four down years in its almost 10-year history.

"In 2021, volatility and higher prices returned to the natural gas markets after over a decade of an oversupplied market," Gerald Balboa tells Opalesque. "This materialised as the market began to experience a tightening supply and demand balance due to multiple factors."

The first factor was the decrease in investment in hydrocarbons as investors focused on renewables, which resulted in supply not keeping up with demand, he explains.

The second factor came from the intermittent nature of renewable energy sources such as solar and wind, which required a balancing mechanism. Natural gas became the default energy source when solar and wind did not generate enough power. And lastly, U.S. LNG (natural liquid gas) was exported more as capacity increased.

"Skylar generated more than 100% return last year by anticipating a tightening supply and demand balance as a result of identifying the above dynamics through the firm's fundamental analysis," he adds. "As the team's analysis indicated an evolution of the market conditions, the fund's portfolio was positioned to benefit from a higher volatility and higher price environment."

The fund employs a fundamental, discretionary and analytical approach to trading. It targets absolute returns primarily through directional and relative value strategies. It calibrates exposure to its judgment of the market risk/reward profile.

The fund uses trade futures and options, exchange-traded, and cleared instruments. Energy trading is based on deep fundamental analytics of global gas and power markets.

The structure is that of a Cayman Master Feeder with onshore and offshore feeder funds. The principal and management are investors in the funds, aligning interest with outside investors.



Upcoming webinar:

Small Managers - BIG ALPHA

Episode 9 of this groundbreaking webinar series presents another carefully screened panel of investment managers. In one hour, you'll meet them all, get to know their top quartile strategies, and since this is an interactive session, you will be able to ask questions.

Who:
Edouard Mercier, Ascender Capital
Bastian Bolesta, Deep Field Capital
• Gerald Balboa, Skylar Capital Management
Elias Nechachby, Icon-MoSAIQ-Carmika

When: Thursday, July 7th at 11am ET / 4pm UK time / 5pm CET

Free registration here: www.opalesque.com/webinar/



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