Consultancy of the Year: Baringa Partners

Baringa Partners continues to carry out valued work with top-flight clients in energy and is also proving successful at breaking into the broader commodity trading sector

Energy Risk Awards 2014

Baringa Partners is certainly not the world's biggest consultancy firm, but as far as energy trading is concerned, it has built up a reputation that exceeds its size. Changing regulations and a difficult market environment have thrown up big challenges for European energy trading firms during the past 18 months. In response, many of these companies have turned to Baringa – putting the London-based energy and financial consultancy at the cutting edge of a number of important market developments across the UK and continental Europe.

The company boasts an impressive roster of energy clients, including utilities such as Switzerland-based Axpo and Sweden-based Vattenfall, and banks such as BNP Paribas and Deutsche Bank. In the past year, it has had particular success with a new type of client: commodity trading houses. Having made a decision to move firmly into the area around the beginning of 2013, the consultancy has seen a rising number of projects, with commodity trading revenues ballooning by 70% in 2013.

"It was about two years ago that we were first looking at the market and the commodities trading area," says Dan Look, London-based leader of Baringa's markets and trading practice. "We looked at the consultancies that were there, and there isn't really anyone who is a specialist like we are in energy. So we decided to start looking at the clients and the problems they had."

As commodity trading houses have grown in size over recent years, they have been increasingly trying to polish their internal systems and organisational structure. For companies that are primarily engaged in capturing small spreads by moving, storing or transforming commodities, overheads must be managed carefully. Baringa has been able to help with that, says Look. "Over time, as those organisations grow and commodity trading margins narrow, they've had to become much more cost and efficiency focused. It is in line with a lot of the things we're doing in the energy space."

In one sense, commodity trading firms face particular challenges. While it may be appropriate to centralise some business functions to keep a lid on costs, such companies might well be reluctant to do it. "The challenge is recognising that part of what has made these organisations successful is the local ownership of profit-and-loss they've had – so trying to find a balance between the old world and the new world, if you like," notes Stuart Cook, a partner in the firm's markets and trading practice.

[Commodity traders] have had to become much more cost and efficiency focused

Baringa is working to assist companies in striking that balance – in 2013, the firm's revenue from commodity trading stood at around three quarters of the figure it made from its much better established energy trading practice, says Look.

For energy trading companies, regulatory compliance remains high on the agenda. Perhaps the biggest event of the year was the start of over-the-counter derivatives reporting under the European Market Infrastructure Regulation (Emir), which occurred in February. In the run-up to the Emir reporting deadline, Baringa worked with 11 separate clients to help them prepare for the rules.

This work has fallen between two extremes, says Cook. In one case, a large European bank required an outside view on how to streamline its multiple Emir compliance projects taking place across different divisions. In another, a London-based merchant energy trader was unaware it was required to comply with Emir and needed help implementing its reporting software as quickly as possible. "All the other clients were probably somewhere between those two," says Cook.

In the UK, Baringa has been working with the Department of Energy & Climate Change on various issues, many of which are related to Electricity Market Reform (EMR). The UK Energy Act, which gives the government the power to implement EMR, was passed in December last year. Correspondingly, Baringa's focus is now shifting to preparing its clients for the changes EMR will bring.

"We see EMR now moving into an implementation and delivery phase across a number of different threads. That's certainly going to focus our attention," notes Phil Grant, a partner in Baringa's energy advisory practice.

This area, along with many others, looks set to be a busy one for the firm during the coming year.

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