the buy side - hedge funds and pension

Jennifer Fraser, February 2009Jennifer Fraser, February 2009 11

The Buy Side - Hedge The Buy Side - Hedge Funds and Pension FundsFunds and Pension Funds

Jennifer FraserJennifer Fraser

Commodity Portfolio ManagerCommodity Portfolio Manager

Ridgefield Capital Ridgefield Capital


My Background- My Background- Commodity Strategist and PMCommodity Strategist and PM

2005-2009 - Ridgefield Capital Asset Management 2005-2009 - Ridgefield Capital Asset Management (Multi- commodity and basic materials equity hedge (Multi- commodity and basic materials equity hedge fund).fund).

2002-2004 - Centaurus Energy (Natural Gas Hedge 2002-2004 - Centaurus Energy (Natural Gas Hedge Fund- commodity only).Fund- commodity only).

2001-2002 - Tudor Investments – Ospraie Funds (Multi- 2001-2002 - Tudor Investments – Ospraie Funds (Multi- commodity and basic materials equity hedge fund).commodity and basic materials equity hedge fund).

1997 – 2001 - Enron Corporation. 1997 – 2001 - Enron Corporation. MBA (University of Toronto, 1997).MBA (University of Toronto, 1997). MA - History (Université de Montréal, 1994).MA - History (Université de Montréal, 1994). BSc - Microbiology and Immunology (McGill, 1990).BSc - Microbiology and Immunology (McGill, 1990).


What does a PM do?What does a PM do?

They DO ideas: Generate investment ideas / They DO ideas: Generate investment ideas / themes then structure appropriate vehicle for the themes then structure appropriate vehicle for the investment (fixed price, time spreads, options, investment (fixed price, time spreads, options, swaptions, basis spreads, cross-commodity).swaptions, basis spreads, cross-commodity).

They DON’T trade: Trading / execution is a utility They DON’T trade: Trading / execution is a utility function and trading team compensation reflects function and trading team compensation reflects it. Trading desks execute shopping lists on the it. Trading desks execute shopping lists on the buy side. ( and it’s almost all electronic).buy side. ( and it’s almost all electronic).


How did I get here: Ski Instructing/ How did I get here: Ski Instructing/ Waitressing to Asset ManagementWaitressing to Asset Management

1990 = RECESSION = no jobs - so you do 1990 = RECESSION = no jobs - so you do what you need to do.what you need to do.

Enron – The good things: largest natural gas Enron – The good things: largest natural gas marketer in North America – At one point owned marketer in North America – At one point owned 20% of pipeline capacity and moved 20% of 20% of pipeline capacity and moved 20% of natural gas – learned industry bottom up and did natural gas – learned industry bottom up and did every grunt job there was.every grunt job there was.

Fell on my face more times that I can count – but Fell on my face more times that I can count – but you have to get back up.you have to get back up.


Following the $$$: Pay Scale Following the $$$: Pay Scale and Compensationand Compensation

Hedge funds: PM gets 10% - 30% of upside. i.e. 100$ Hedge funds: PM gets 10% - 30% of upside. i.e. 100$ mln AUM makes 25% or 25 mln$- PM collects 5$ mln = mln AUM makes 25% or 25 mln$- PM collects 5$ mln = rewards short term performance.rewards short term performance.

Pension Funds: Lower comp in the front years but Pension Funds: Lower comp in the front years but increases over time = rewards long term performance.increases over time = rewards long term performance.

Analysts and associates make 85$K to 150 K$/yr – with Analysts and associates make 85$K to 150 K$/yr – with bonus solely at discretion of PM. i.e I pay you out of my bonus solely at discretion of PM. i.e I pay you out of my bonus pool.bonus pool.

Analysts and associates typically cost money for 2-4 Analysts and associates typically cost money for 2-4 years – errors, learning curve and execution errors.years – errors, learning curve and execution errors.


Getting in the door:Getting in the door:

Distinguish yourself in a particular industry / sector- Distinguish yourself in a particular industry / sector- anyone can do comps- not everyone can bring an idea anyone can do comps- not everyone can bring an idea and or insight to the table.and or insight to the table.

Work for a specific basic resource company – XOM, Work for a specific basic resource company – XOM, CVX, TOT, ECA etc – CVX, TOT, ECA etc –

Build a network in the industry not just a list of ibanking Build a network in the industry not just a list of ibanking analysts and associates.analysts and associates.

Know your industry inside and out : production, Know your industry inside and out : production, transport, consumption, regulation, etc.transport, consumption, regulation, etc.


Random Events - HurricanesRandom Events - Hurricanes

Waves not wind do the damage- water is heavy.Waves not wind do the damage- water is heavy. Storm damage is often underestimated.Storm damage is often underestimated. This is where knowing your pipes comes in handy.This is where knowing your pipes comes in handy. Proactive instead of reactive.Proactive instead of reactive.


Getting Natural Gas and Crude Oil to MarketGetting Natural Gas and Crude Oil to Market


Gulf of Mexico – Nat Gulf of Mexico – Nat Gas InfrastructureGas Infrastructure


ENB Gathering System: Direct Hit By Ike and GustavENB Gathering System: Direct Hit By Ike and Gustav

IKE

Gustav


GOM: Major PlatformsGOM: Major Platforms


Hurricane Flooding: Hurricane Flooding: Knocks out Onshore ProcessingKnocks out Onshore Processing


Closing thoughts: Closing thoughts: Commodities vs EquitiesCommodities vs Equities

Pure play – no more guessing about Pure play – no more guessing about management.management.

There is no equity story without a commodity There is no equity story without a commodity story – learn the industry from the inside.story – learn the industry from the inside.

Get “your hands dirty” with actual product.Get “your hands dirty” with actual product. Far too many equity analysts can’t find Cushing, Far too many equity analysts can’t find Cushing,

OK or Erath, LA on a map.OK or Erath, LA on a map.


Contact Info:Contact Info:

Email: [email protected]: [email protected]

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