What's up, everyone? Today, we're covering an interview that Lincoln Archibald had with Nancy Morales from Dynasty Power about building a $300M Energy Hedge Fund!
Listen to the podcast "Funds that Won" to get the full audio!
Energetic Trading
Lincoln Archibald: Nancy, tell us about what you do!
Nancy Morales: We trade power and electricity in North America; even though we are headquartered in Calgary, we mainly trade in the US.
We started in 2011 and we now have 50 employees in Calgary, about 12 in Houston, and we just started a branch in Europe.
Our initial 7 shareholders started us off with $1.1M, and we are now managing $300M!
We provide annual distributions to our shareholders, and we have no outside investors.
Lincoln: So, no LPs? You could say it's more like an investment club then, right?
Nancy: Exactly. All the shareholders have outside businesses, so they wanted distributions to get cash, even if it does take away from the fund.
Sink or Swim
Lincoln: So, tell me about those early years when you just had a million to start out?
Nancy: Starting out, it was very intense. For the first few years, I kept my day job to make ends meet and to make payments on our mortgage.
Most of those early trades were a "do or die" situation, meaning that the trade would either make us a lot of money or wipe us out.
We were small fish in a huge pond. The big banks we were competing with were obviously not in the same situation as us: if they made a bad trade, they had the funds to back them up.
Lincoln: Tell me about the electricity market.
Nancy: With the electricity market, you can trade by hour, day, week, month, or year.
The longer the time frame, the higher the risk and the more credit required.
We don't own any physical assets like the bigger companies.
The end user is an ISO (Independent Systems Operator). They ensure that the demand is met by the supply, thus balancing the electricity grid.
As a hedge fund, we can purchase power and electricity from the outside, and flow it into to ISO.
There are 2 types of trading in this industry: Physical assets and financials.
Physical asset trading entails buying from Nevada, for example, setting up a contract with a client there, purchasing it at a determined price, buying the rights to sell it in California, and making the sale in the market - changing that flow of electricity.
Financial trading includes the options and futures markets: you can purchase a position that settles a week, month, or year out, and take a position on whether it will be 'x' price or below and buy or sell that position.
Nancy's Beginnings
Lincoln: Tell me about your back story as an immigrant.
Nancy: I was born in Vietnam to a Chinese father and a Vietnamese mother.
Shortly after the Vietnam War, we were allowed to leave Vietnam and we lived in China for a year.
Then, we took a wooden boat to Hong Kong when I was 3.
At the refugee camp there, we applied for different countries that would take us, and we were accepted by Canada and moved there when I was 4 years old.
Conclusion
That's all we're covering today from Nancy Morales at Dynasty Partners but listen to the rest of the podcast to learn how she built a $300M Energy Hedge Fund!
If you want help starting your own energy, real estate, or private equity fund, then visit Fund Launch!
Or, visit my YouTube channel to get more free content!
Thanks for stopping by,
Bridger Pennington
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the author
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