Former top commodities traders from Deutsche Bank are in talks with U.S. private equity group Riverstone to set up a $0.5-1.0 billion venture that will both invest and trade in commodities, Reuters is reporting.
(Reuters) – Former top commodities traders from Deutsche Bank are in talks with U.S. private equity group Riverstone to set up a $0.5-1.0 billion venture that will both invest and trade in commodities.
The venture, which will put money into assets ranging from energy producers to pipelines and refineries, is a rare foray by a private equity firm into commodities at a time when banks are curbing exposure due to tighter regulations and stagnant prices.
Riverstone, an energy and power-focused private investment firm with around $24 billion of capital raised across seven investment funds, will hold a controlling stake in the venture, TrailStone, to be launched later this year.
David Silbert, who led Deutsche’s commodities trading team from 2007 before leaving last year as the bank reduced exposure to commodities, will also be investing in TrailStone together with his partners, Silbert told Reuters.
“TrailStone will be an asset-backed commodities merchant. We will buy refineries and production assets, create joint ventures with people who have assets,” Silbert said.
“There are loads of upstream producers who need capital. We will be telling them – pay us back in production not cash.”
Riverstone declined to comment on the investment.
Silbert had helped build Deutsche into one of the largest commodities players in banking before the German lender reduced exposure for reasons including tougher regulations on proprietary trading.
Hedge funds have also recently reduced exposure to commodities due to poor returns, giving a large market share to unregulated Swiss trading houses.
“We will be different from a hedge fund. Our model won’t be very much different from trading companies, which have been generally good at acquiring assets,” said Silbert.
“But we will be fairly risk averse. There will be no emphasis on proprietary trading,” he added.
He said the company would invest in assets across all continents and have offices in the United States, Britain and Australia.
“The venture will be energy-focused but precious and base metals, iron ore and coal will be also big for us. We will be focusing on investing in mid-sized companies with quality assets,” he said.
Once the venture is running, it could partner with other private equity funds or offer them help in running assets or trading commodities.
Silbert’s partners at TrailStone will be Troy Martin, previously chief operating officer of Deutsche’s commodities trading, Bill Gebhardt, who as he did at Deutsche will oversee European power and gas, John Redpath, who will look after oil and agriculture, and Raymond Key, who will oversee metals.
Silbert previously worked at Merrill Lynch and Koch Trading. Riverstone has offices in New York, London and Houston and has invested around $21.8 billion to 98 projects in North America, Latin America, Europe, Africa and Asia.