How one ambitious Houston hedge fund trader’s investment in hard assets underlying his trades could mark a tipping point in the world of Big Oil, as well-capitalized speculators begin wagering like private-equity firms on the future of the industry. (Plus, they can literally hedge their bets.) A peek at why he’s heading south of the border.

When Bill Perkins, 39, took his first trip to El Salvador, he was not expecting much. "This is a country that, not long ago, was being ravaged by civil war," he says. "I was bracing for a lot of rubble and bullet holes.

“What he found, however, were well-paved roads, hotels packed with foreign investors and a populace with "a lot of fancy degrees".

That reconnaissance mission three years ago has led to one of the biggest private investments in dollar terms in Central America since the Panama Canal: an $800m (£411m), 525-megawatt, gas-fired power plant that aims to bring El Salvador and its near neighbours cheaper, cleaner-burning electricity at a time when the region's dependence on more expensive oil-based fuels is inciting strikes and wreaking financial havoc.

But Mr Perkins is not just any investor. He is one of the founding traders of Centaurus Energy Advisers, a hedge fund of about two dozen market makers - many formerly of Enron - that has reaped billions by betting on record-breaking prices in gas and oil.

With assets under management of $3bn-$4bn, the commodities fund has posted annualised average returns of more than 200 per cent since its launch in 2002 on the heels of Enron's implosion. Centaurus is run and majority-owned by the famously press-shy John Arnold (also ex-Enron), at 34 one of the world's best-known traders, who was named last autumn as the youngest member of the Forbes 400 Richest Americans list.

By investing in the hard assets underlying his gas trades, Mr Perkins is taking on the unusual role of both speculator and producer, invading what has traditionally been the preserve of Big Oil.

Financial backers of the project include Mr Arnold, who owns a 7.4 per cent stake; former Enron president Lawrence Whalley, also of Centaurus, who holds a 2.8 per cent share; and Jeffrey Bussan, an ex-Enron trader who has a stake of just under 1 per cent. Mr Perkins, who never traded for Enron but got to know his colleagues by competing against them as a trader for AIG Trading and El Paso Corp in the 1990s, retains an 85 per cent interest. The balance of the funding is being arranged through Central American banks, such as BCIE, and possibly a float on a stock exchange like London's Aim.

"Energy prices have climbed so much that we decided it's time to go upstream," says Mr Perkins, who has invested $5m of his own money as founder and chief executive of Cutuco Energy Central America, the company he launched in 2005 to build the power plant.

"I think the outlook for hard assets at this point is generally much, much more profitable than just trading on the market," he says. "Trading is a guessing game, but assets are a knowing game."

The leap is virtually unprecedented for individual traders or hedge funds and shows how sophisticated energy players are changing their strategies to cash in on the longest-ever bull run in oil.

"For a trader to get involved in a large infrastructure project in an emerging market, particularly where there's no trading activity - I can't say I know it's the first of its kind, but if it was, I would not be surprised," says David Haug, 51, co-founder of Houston consultancy Arctas Capital Group, adviser to Mr Perkins and former senior executive at Enron from 1992 to 2000.

http://www.ft.com/cms/s/0/725d8f52-2216-11dd-a50a-000077b07658.html

Next article » Hamptons: Hot Air Release?

Previous article « Hamptons: Our (Paltry) Two Cents