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Thu 18 Dec 2008 04:00 AM

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Financial focus: Volcano Fund

Oil and Gas Middle East speaks exclusively to Reech Aim's founder and CEO, Christophe Reech, on the recent launch and success of its new Volcano Fund.

Oil and Gas Middle East speaks exclusively to Reech Aim's founder and CEO, Christophe Reech, on the recent launch and success of its new Volcano Fund.

Reech Aim, a company founded in 2006 to establish and manage alternative investment funds focused in financial markets, real estate and natural resources, recently unveiled its hydrocarbon centred Volcano Relative Value Fund.

The new fund is unique in that it looks to exploit inefficiencies in the oil market; something that suddenly becomes more attractive in light of the near US$100 swing in crude oil prices over the last three months.

Set up in July 2008, the Volcano Fund now boasts US$50 million in current capital and aims to grow the asset under management to $1 billion. The company operated a 2% growth during the three months which saw oil prices fall in the region of 60% - a positive indication of the fund's potential.

The main differentiator of the Reech Aim Group, according to the company, is the unique investment philosophy. Funds are managed on the basis of the pre-definition of the funds risk profiles and return profiles, with risk management actively used to assert the profiles values.

The Volcano Fund's investments are to be made in oil futures, options on futures, crude oil, refined oil products, oil tanker freight rates, OTC (over-the-counter) swaps and options. According to Reech, all of these will have exposure to oil risk, and therefore the dislocation between these markets presents the trading opportunity.

"We believe very strongly in the non-directional approach. The next few months and the coming years should allow us to see opportunities and inefficiencies in the oil market, not only for crude oil but also refined products. In fact, we are a great believer in the truth that crude supply is not the issue any more, but that the infrastructure for refined products has not caught up yet," says Christophe Reech, chairman, CEO and founder of Reech Aim.

"And, of course, the current global recession will also not help this situation," he adds.Christophe Reech is a successful entrepreneur in the derivatives and risk management sector with over 15 years of experience.

He was awarded the Risk Magazine's ‘Risk Technologist of the Year' award in 2004, and has appeared in Time Magazine as one of the ‘Top 25 European Innovators' for his visionary concept.

"The downturn in the market is not a problem; it is a great opportunity for the fund. The developments we have observed recently have been profitable for the fund, which for the first three months has had a positive performance of +2% in a market which has lost more than 60%," asserts Reech.

The fund essentially works on an arbitrage system, with investments made on the price discrepancies in three areas: crude oil, crude and refined products and in freight transportation. As it is not an equity fund, the investments are safe from economic downturns - which often present arbitrage opportunities.

"Most of the other energy funds are equity specialists. We do on the other hand do not invest in Equities. Consequently our expertise lies in our deep understanding of the underlying asset class, our understanding and experience in the derivatives instruments attached to the asset class, and finally our skills and competencies in managing risk," says Reech.

"Volatility is our friend: inefficiencies are going to increase and we will be there to exploit them, and because the fund is not directional it actually does not matter if the market is up or down. Consequently, Volcano represents a decent Hedge and Alpha generation in a negative environment. Ultimately, the fund is generating positive performance in a market which is very gloomy."

The Volcano Fund is offered into several share classes, with investors being able to invest in Euros, US Dollars, Swiss Francs or British Pounds.

"In addition, the fund offers a unique way to invest for investors who would like to generate the performance of Volcano but at the same time betting on a rebound of the barrel price. The share class is denominated in barrels and performance is calculated in barrels as well. By doing this we offer the best of both directional and non directional performance," concludes Reech.

A better evaluation of the Volcano Fund's success should become more visible after a more prolonged period of investments; Oil and Gas Middle East will be keeping a close eye on the Fund's developments.

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