Diapason launches Relative Value Petroleum Industry Fund

Lausanne-based Diapason Commodities Management has launched a Relative Value Petroleum Industry Fund focused on the micro-economics of the global oil refining industry.

The Luxembourg-registered fund trades spreads between commodity future contracts. It aims to provide an absolute return de-correlated from traditional energy related strategies.

The investment team uses a proprietary modeling of the refining industry to determine the equilibrium relationship between crudes and refined product prices. The fund will be ‘Barrel-neutral’, and so not exposed directly to directional oil price movements.

It exploits refining margins and quality premiums by following the daily movements of the three major refining hubs – US Gulf Coast (USGC), Singapore (SING) and North Western Europe (NWE). Arbitrage opportunities lie between and within each of these hubs.

The fund has share classes in dollars, euros, Swiss francs and sterling. Fees comprise a 1.5% annual management fee, as well as a 15% performance fee above share class hurdle rate (Fed funds/ Eonia/TOIS/Sonia), with a high-water mark.

Edouard Mouton, head of Quantitative Research at Diapason, said industrial players, and specifically refiners, drive the price differential between substitute or derivative oil products.

“By taking long and short positions on specific crudes and products our consummate strategy allows us to profit from the rational behaviors of these industrial players as they react to changing market conditions,” he explained.

“The excess capacity in the refining sector has placed even more emphasis on industrial players maximizing cash margin, and looking in deep detail at each plant’s technology and each hub’s specificities, the fund is able to anticipate market changes linked to daily adjustments made at industrial plants.”

Taking long and short positions on specific crudes and products, the fund seeks to mimic one of these plants and benefit from the anticipated adjustments.

The portfolio will be subject to strict risk constraints, with the allocation between the different spread-strategy pairs optimized through a Sharpe ratio maximization process until the pre-defined risk budget target is hit, and a stop-loss set for each pair, using a high-watermark feature.

Diapason was established in 2003. With some $7bn assets under management at end December 2012, it is an independent commodity asset management firm providing a range of commodity funds to institutional and high net worth clients. Diapason is a signatory to the United Nations’ Principles for Responsible Investment.

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