(Bloomberg) -- Hedge funds Balyasny Asset Management and Qube Research & Technologies Ltd have recently started trading physical gas in Europe, the latest move by financial firms to expand in a volatile market that has generated massive profits for commodity firms in recent years.
Both funds are ramping up trading contracts for physical delivery, with Qube already buying and selling as much as some of the biggest companies in the market, according to a person familiar with the matter who requested not to be named discussing private activities.
Bloomberg reported last year that Balyasny was setting up a unit to trade physical gas and power in a bid to generate more profit from its growing commodities business. Qube also moved into physical markets last year.
Both firms have established separate entities for activities including physical trading and are registered on the European Energy Exchange AG, as well as having gas shipping licenses in the UK.
The success of Citadel has set a benchmark for financial firms developing strategies in physical gas and power. Citadel’s commodities business generated about $4 billion of profit last year, driven by gas trading, Bloomberg reported in December and other firms are chasing similar success.
Hedge funds piled into Europe’s gas derivatives market in the aftermath of the energy crisis, drawn to the intense price volatility. The moves by Balyasny and Qube are part of the shift by financial players into a space once dominated by producers and utilities and they are joined by a growing rank of firms such DRW Holdings LLC.
Trading opportunities are abundant right now. Futures prices for European gas fell from 2022 peaks, but remain volatile as the regional market reacts to geopolitical headlines and rapidly decreasing inventories, which will need to be replenished over the summer.
Buying and selling physical commodities means funds are able to access and arbitrage areas of the markets that aren’t covered by derivatives. The risks are higher - it’s more capital intensive, regulations are different, buildout takes a long time and commitments like pipeline capacity are less easy to get out of than a derivatives contract.
Both Balyasny and Qube are trading through desks based in Denmark and have been hiring aggressively over the past two years.
Qube set up Volta Energy Designated Activity Company and Balyasny is trading through Atlas Energy Designated Activity Company, according to people familiar with the matter and public records pulled by Bloomberg.
Volta is Dublin-based and Norway’s enterprise register lists Joran Mattes Blaue, chief operational officer of Qube in Denmark, as a contact person for the entity, which also trades financial gas contracts and power.
Balyasny is rolling out its physical gas operations in Denmark via Atlas. Global Legal Entity Identifier Foundation, an online tool that helps to identify the legal owner of a company, lists Balyasny as the owner of the Atlas fund.
A company representative for Qube confirmed its operational physical business in Denmark, but declined to elaborate on further details. Balyasny declined to comment.
--With assistance from William Mathis and Lucca de Paoli.
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