New York-based hedge fund Highbridge Capital Management, majority owned by JP Morgan Chase & Co. (JPM), has reached an agreement to invest in Louis Dreyfus Group's merchant energy arm to form a new trading partnership. The venture, to be called Louis Dreyfus Highbridge Energy LLC (LDH Energy), will trade both physical and financial contracts, supported by a portfolio of energy assets that include storage and transportation facilities.
Louis Dreyfus' energy trading business is already one of the top 10 energy marketers in North America tracked by NGI (see Daily GPI, Dec. 26, 2006). It traded 5.66 Bcf/d in 3Q2006.
The new partnership, estimated to have an enterprise value of more than $1 billion, will be based in Wilton, CT, with North American trading offices in New York, Houston and Calgary, and overseasng offices in Geneva, Switzerland; Shanghai, China; and Singapore.
"The transaction offers turnkey access to a 290-person merchant energy business," said Glenn Dubin, 49, who will serve as a co-chairman. Dubin said talks with Louis Dreyfus first began in April 2005. "Highbridge concluded that the merchant energy business had large barriers to entry, and that investing in a successful and highly regarded merchant, particularly one with such a distinguished history as Louis Dreyfus, was the right approach," said Dubin. "The partnership offers access to a diversified energy platform with trading activities in both physical and financial commodities supported by real assets. LDH Energy provides for the opportunity to generate attractive risk-adjusted returns, with the added benefit of having a low correlation to Highbridge's other investment strategies."
Although it will not be directly involved in the new venture, JPM's banking prowess is expected to play a role. JPM began to expand its energy merchant operations in 2005, and last year, it bought positions in energy-focused Amaranth Advisors LLC as the hedge fund collapsed. Two weeks after the purchase, JPM sold half of the positions to Citadel Investment Group LLC for $725 million.
William Louis-Dreyfus, the former CEO of the Louis Dreyfus Group, will co-chair the venture.
"The combination offers growth capital to strategically expand Louis Dreyfus' involvement in the energy commodity business," said Louis-Dreyfus. "We are delighted to be partnering with Highbridge. Its entrepreneurial culture, leading position in the hedge fund industry and proven success in risk management and technology combine to create a great strategic fit for Louis Dreyfus."
Additional directors include Todd Builione, Highbridge's chief strategic officer; and two Louis Dreyfus executives: Paul Addis, president, and Jeffrey Gilman, CFO.
Highbridge Capital Management is a $17 billion multi-strategy hedge fund organization with 230 employees and 80 investment professionals. It returned an estimated 24.7% after fees to its clients in 2006, compared with 15.7%, including dividends, for the benchmark Standard & Poor's 500 Index. Since its inception, Highbridge has returned more than 15.5% net of fees annually.
Highbridge's business is diversified across 10 core strategy groups: statistical arbitrage; global convertible, credit and volatility arbitrage; event-driven and relative value; Asian equities and convertibles; long-short equity; special opportunities; structured private investments; fixed income; credit relative value; and other strategies. In December 2004, Highbridge entered into a strategic partnership with JPM whereby an affiliate of JPM purchased a majority interest in Highbridge.
The global commodities business of the Louis Dreyfus Group includes processing and merchandising various agricultural and energy commodities such as orange juice, grains, oilseeds, cotton, sugar, coffee, natural gas, refined products and natural gas liquids, as well as the ownership of fixed assets related to these commodities. In addition to commodities, the mega-corp. also engages in shipping, real estate and telecommunications businesses.
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