Energy hedge fund springs from bank alumni

Thu Nov 29, 2012 6:34pm EST

* Energy traders starting post-financial crisis funds

* Government regulations cut into bank trading profits

* FERC clamping down on power market manipulation

By Jeanine Prezioso

NEW YORK, Nov 29 (Reuters) - Three natural gas and power traders who had worked for JPMorgan Chase & Co and Barclays Plc have teamed up to start a fund trading in gas and power markets starting in January.

Stamford, Connecticut-based Cogent Energy Investment Management LLC has three principals, Fletcher Sturm, Robert Benson and Frank Ermis, all Enron alumni, according to a report in the online publication SparkSpread.com.

Sturm is listed as a principal in the fund, according to documents filed with the Connecticut Secretary of State, and had previously worked at Barclays trading gas.

Benson and Ermis joined JPMorgan in 2007 from UBS as executive directors for power trading in eastern markets and natural gas trading in the west, respectively, according to a statement from JPMorgan's website.

Benson then went to work for commodity trading merchant Freepoint Commodities in Stamford, focusing on eastern power markets from May 2011 until July 2012, a Freepoint spokesman confirmed.

Attempts to reach the fund's principals were unsuccessful and it could not be learned how much money the fund has under management.

The new fund comes at a time when commodity hedge funds have sprung up from traders fleeing ailing banks and stringent federal regulations governing proprietary trading.

U.S. energy regulators have also been clamping down on banks they have accused of manipulating the California power market, recently issuing strong measures against Barclays and JPMorgan.

BANKS UNDER FIRE YIELD NEW FIRMS

Energy traders have been leaving for commodity trading merchants or to start their own funds as U.S. federal law crafted after the 2008 financial crisis has cut into their profit-making capabilities.

Freepoint Commodities itself was started by former RBS Sempra Commodities executives with private equity backing in 2011, after Royal Bank of Scotland had to divest its portion of the joint venture held with Sempra after it took U.K. government bailout money.

More recently, a slew of banks including JPMorgan, Deutsche Bank and Barclays have been accused of power market manipulation by the U.S. Federal Energy Regulatory Commission (FERC), which oversees electricity markets.

Late last month, FERC proposed a $470 million fine against Barclays to settle allegations that the bank manipulated California electricity markets.

Earlier this month, FERC suspended the ability of the energy trading arm of JPMorgan to sell power at market-based rates for six months from April 1, 2013, essentially preventing the bank from profiting from competitive market prices.

JPMorgan misled regulators in responding to requests related to a market manipulation investigation, FERC said.

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