We are aware that the energy world is complex. Mixing this with trading and different commodities does not make things easier. For this reason we have dug deep and imagined what we would ask if we were on the investors side. You have the results on the right.
You have other or more questions. Lay them on us. We are happy to respond.
Financial vs Commodity Trading
Financial trading it’s all about positions. Financial traders are not interested in the underlying itself. For traders, the underlying is a means to an end and not the objective of their activities. At the end of the trade, he is only interested in the financial result of the position. If he has to take physical positions for a reason, he will always close them (buy and sell equal amounts) to annihilate risk.
Commodity trading has a strong physical side as many times the counterpart wants to buy or sell real products because he needs to get rid of it physically or he needs to fill an existing gap. In financial trading, logistical requirements are minimized as physical positions are avoided. In commodity trading, as physical products may be moved, logistics have an important role to play and bottlenecks are the constraints and opportunities of the system.
Commodity trading is a much more complicated activity that supposes deep knowledge of the respective commodity and its logistics.
How are losses and scandals prevented
Besides the above said, those scandals could mushroom through fraud and malpractice. They also promise unrealistic profits and are recognizable through it. Its impossible to get rich with one big deal in trading. EnerVictus will collect the margins from many small deals and through this accretion process build up healthy profits.
External control systems in Austria, designed to prevent fraud and malpractice are very strong in part because of some prominent failures. EnerVictus will have its books audited, tax counsel will examine all trades and our own internal and external control systems will check everything for unworthy deals and flush them out if they happen.
Internal sanctions for improper behavior by any trader is being sanctioned with no mercy. No system however is foolproof and there can never be a 100% guarantee against such frauds. Our best security policy is that we know those tricks very well and also that we filter those working for us personally and ruthlessly for bad apples.
How do we beat Market indices
Traders in EnerVictus will collect margins from many small deals by accretion and earn on arbitrages when the opportunity presents itself rather than gambling the markets on a dime. This spreads risk and allows healthy profits.
Isn’t this speculation
YES, if only partly. Speculation is normal trading activity and accounts for a piece of the planned profits.
When someone plans to build a power plant (as an example), he estimates that the costs of construction and finance, wages, fuel (oil, gas, coal, …) and other OPEX items will in sum be lower than what he will be able to earn with it. A lot of very diverse information items have to be factored into a very complex calculation (including future prices for fuels to name but one) in order to reach FID (Final Investment Decision). Such a venture is generally not regarded as being speculative in nature as we deal with assets here and people in general do not regard investments in assets as being speculative.
Trading starts with a fixed opening price called opening position and the only other information that must be analyzed is the closing position. This is a much simpler and more straightforward process but it is considered speculative. Both present risks but in trading they are much clearer, more transparent and limited (valuation and accounting regulations, trading systems, risk management systems, daily profit and loss appraisal, etc.) than in projects that are much harder to evaluate. Companies like big, obscure projects because they allow them to hide “Bad assets and mistakes”. In trading that has become virtually impossible except of course in case of outright fraud (faking data etc.)!
Superior information on market developments and their evaluation as well as access to multiple commodity markets allow us to raise margins. Not all positions we open will develop favorably. That’s the nature of business itself. The sum of positive deals shall exceed the sum of negative deals so we can realize overall excess profits. In the end profits need to exceed losses. We will not aim to hold on to every deal in the hope that it might eventually turn positive. Negative deals are closed which prevents the buildup of looming liabilities through negative portfolios.
In the end we all speculate every day. It’s just a matter of perception. EV will not gamble on the market but rather take well calculated risks where the risk / profit ratio is sound. EV will stay away from extremely risky trades even if they offer the potential of a very large upside. EV’s policy is to rather collect the less risky money day by day through accretion.
Origination vs Trading
Origination deals are very complex, sophisticated sales deals with extremely bespoke contractual arrangements at its base. Origination deals usually suppose very strong corporate or personal relationships between the counterparts.
EV will engage in very bespoke and sophisticated origination activities if they are back to back (that’s means essentially risk free and hence have the character of service deals). EV will also not conduct origination as its main business but rather an exotic add on activity.
If a strategic investor brings origination opportunities to the table, EV will consider and service them. EV will also act as a broker if this proves to be profitable and is required but again only on a strict back to back basis. EV will normally not transform product according to the wishes of the counterpart. It’s the same product in and out only if the transfer offers a fair profit opportunity, we will think about.
Sales vs Trading
Sales is a bespoke contractual relationship where every deal calls for a new contract with bespoke rules there are no standards and long lead times for every single deal. Sales deals are often confounded with trading deals as parties take positions. Contractual arrangements for such deals can be very complex but are always tailor made to a degree. Sales deals are rare so deals are pursued over long times and vigorously. Profit comes as a sort of fee for connecting offer and demand (sometimes with a transformative process on the product in between). Sales also is a team activity.
Trading, on the other side, deals with standardized products and a normalized procedure. Multiple trades can be performed simultaneously in very rapid staccato. Terms and procedures are pre-arranged in standardized framework agreements called EFET‘s or ISDA’s. Traders usually perform on a lot of single trades every day and for that reason works on multiple deals alone. His profit does not come from the “one big deal” but rather through accretion of multiple small deals. Therefore EV will stay clear of classical sales activities although if a back to back deal opportunity presents itself we will evaluate based on the economics of the deal and our ability to perform.
What are my control rights
EnerVictus offers investors to place a person of their confidence inside the company. This person will have the right to look into any dealing of the company. This will however not be a position paid by EnerVictus as only persons operationally active for and on behalf of EnerVictus will earn a wage from EnerVictus. The fact that this person does not depend on EV is another protection for the investor as it ensures loyalty. He will be more interested in reporting correctly what he sees rather than saving his job.
This person will be able to act as internal revision and make all our dealings transparent to investors on a regular basis.
Why Commodity Trading is better than Financial Trading
Access to the regulated market costs a lot of continuous administrational effort (very specialized human resources) and money. Not all players in the general market go the full way and therefore have very restricted or no access to the regulated market. Also, information is not yet diffusing uniformly to all players as many of them would not even know where to start looking for it.
The mix of those two fundamental reasons provides for lots of market arbitrage opportunities for those with cross commodity access and the sophistication to exploit them then in financial trading. The physical link, which very often does not exist in the financial market, provides for further opportunities that can be exploited.
Why during a Crisis
A Chinese proverb says that in crisis lies opportunity. One man’s crisis is another man’s chance. EnerVictus will make opportunities of every crisis.
Why investing with us and not with others
EV creates a slim, aggressive, flexible and competitive organization with flat structures made only in order to take advantage of imbalances and opportunities in and between the financial and the commodity markets. EV will stay clear of any mission and / or agenda that stand in the way of profits. Our only reason to exist is to produce as much shareholder value as we can.
Why is another Energy Trader needed
There are pure financial players who are not interested in the physical link (that’s the case for most of the banks and investment companies out there) in the commodities market as their focus lies on the hedge positions commodity markets offer on the one side and on having an additional possibility to invest the enormous piles on money they are sitting on.
Utility type players care more about their sales portfolios and try to assure physical supply to their customers rather than building profits from trading activities on the other side. Very few players focus on cross commodity deals and services. EnerVictus will be one among very few.
Why is the Investment not open ended
With this sum EnerVictus will be able to exploit all existing opportunities currently on the market. More money will not simply increase profits in a linear manner as the opportunities cannot and will not be created artificially.
Why now and not later
The energy world has changed beyond recognition over the last 10 years and the pace of change is accelerating. This produces lots of problems for existing players which is an opportunity for EnerVictus. Those imbalances will not exist forever as the existing players will either learn the business or go away. Currently they are too busy with their utility and optimization activities. We must act now as in a couple of years the window has closed.
Anyone who is not established when the window starts to close – and being established means having a history – will find entering the market extremely challenging.
How safe is my Investment
Internal and external control systems prevent shady dealings. Trading, just like any business, always bears the risk of loss but strict trade limits prevent any losses to spiral out of control.
Those control systems as well as our know how, our access to multiple markets and the resulting market positions help to limit risks and make them transparent and evident. Risk position thus become transparent and can be dealt with effectively. This is virtually impossible with existing utility type players because of their structure (based on sales rather than trading) and because their complicated structures and portfolios allow much more effective hiding of bad assets.
EnerVictus won’t build up such portfolios which makes investments in us inherently safe and more controllable.