Plum Grove Pool Management– our guiding principles and philosophies.
In the world of pool management, as in the world of stock broking or funds management, there are differences in pool returns. Why is this so?
At the very top level, a pool manager is guided by the tone of the Board, the skill and expertise of the pool management team and the dedication of the wider business in supporting the pools. Wrapped around this should be cutting edge risk management policies and systems to support the business.
In such an environment, a pool management team can excel and we believe that this is the case at Plum Grove and in our management of the Plum Grove Harvest Pool and other pools we also manage.
So how does the pool management process work? While the in-depth detail is very complex, the overriding principles are very simple, as they should be in any well run marketing plan.
Daily Information Gathering
The pool management process starts with information. Plum Grove directly sources global supply and demand data from key government and non-government suppliers around the world including floor brokers in US and global markets. This ensures our information comes straight from the source and is not reinterpreted (and potentially skewed) through the eyes of another market participant.
Plum Grove sources its information from many places:
Pool Management & Trade Process
The Pool Management Team then uses all the information to carefully construct a view on the grains complex and broader global economic macro-view. The Team then translates this into an overall pool trading and hedging strategy. This strategy will reference the style and mandate of the pool to ensure that it delivers what growers expect from that pool.
Strategies are put to the team for consideration:
Strategy Implementation
With any investment or any time you put money at risk in hope of a return, there are some simple concepts that allow you to do so whilst not putting too much capital at risk. This is very much the pools management process – how can we make you $5 while risking for instance, only $1?
When the Plum Grove Pool management team construct a strategy, the question they ask themselves is: if the market is actually trading at X, but fundamentally, we believe it should be higher at Y, why does this difference exist and what do we think are the factors that will bring these two into line?
This concept is at the core of pools management: understanding where the market is currently sitting and the factors, good and bad, that can impact its price. From there working out, for a given unit of risk (say $1 in our example), can we put the pool into a position where some of this value can be captured?
A this point, a number of strategies will be assed – aside from the core strategies developed for the pool, all members of the pool management team are encouraged to bring trades to the table for discussion & consideration. The team then consider all the strategies proposed and pick the ones that have the most merit for further consideration. At this point, the final decision is made and the plan is executed.
The best strategy is selected and implemented:
Ongoing review, stress testing and analysis
Today’s markets can change rapidly —pool management is an ongoing process of repeating the daily steps in order that adjustments can be made when necessary or the strategy can be changed.
The review process:
Net Result
While we can’t speak for the competitive landscape in which Plum Grove operates, we believe that a pool manager that has a sound, prescribed set of guiding principles and philosophies is more likely to succeed in posting outperformance returns for their grower clients.
As of the 20th of April 2011, The Plum Grove Harvest Pool has outperformed its nearest pooling competitor by $10.14/mt (Source DailyGrain).