Ex-Balyasny trader sees El Niño creating new opportunities for energy hedge fund

Former Balyasny Asset Management trader Zulfiqar Ali is exploring new opportunities for his London-based hedge fund, ZAMS Asset Management, amid an anticipated strengthening of El Niño, according to Bloomberg. As the firm's founder and chief investment officer, Ali believes that the climate phenomenon could generate a highly favorable environment for energy commodities strategies later this year.

ZAMS, with a $350 million portfolio, gained 5.7% in August and has grown 13% so far this year, as per Ali. The 34-year-old graduate of Cambridge mathematics established the firm two years after leaving Balyasny, employing around six traders, quantitative specialists, and weather strategists. These professionals merge energy futures analysis with data from weather models to identify discrepancies between expected weather conditions and market pricing.

Power futures account for approximately 80% of the firm's profits, and Ali considers El Niño a key market driver for the remainder of this year and into early 2027. Typically, ZAMS holds between 25 and 30 positions, maintaining trades for an average of eight days. The strategy helped the firm predict some of the impact on European power markets due to disruptions at French nuclear plants during the summer caused by high temperatures and low river levels.

However, earlier this year, ZAMS faced its worst month when it was short French and German electricity contracts based on expectations of transitioning from La Niña to El Niño. When wind generation weakened and available supply fell, wholesale power prices surged, leaving the fund vulnerable to a 30% loss against its positions. Ali attributes this setback to the El Niño transition happening earlier than expected, beginning in May rather than later in the year as most experts had anticipated.

Despite this challenge, Ali remains convinced that the El Niño cycle is a significant macroeconomic theme and emphasizes the increasing interest among alternative asset managers in incorporating weather data into investment decisions as climate conditions impact commodities, inflation, and economic activity.