CubeLogic- Emerging as a Force in Energy & Commodities Risk – CTRM Center

Original Post on CTRM Center: CubeLogic – Emerging as a Force in Energy & Commodities Risk – CTRM Center | CTRM Center

Author Dr. Gary M. Vasey

Energy & Commodities Credit software has an interesting history and has developed as a class of risk software supplementary to E/CTRM and related software. Back in the early and heady days of ETRM in the late 90’s following FERC636 in the USA, the focus was naturally initially on price and market risk. Credit risk as unique topic of conversation only seemed to emerge after the collapse of Enron and the US merchant sector around 2001 when all ETRM/energy risk vendors were suddenly asked about their credit capabilities. There was a rather large hole around credit risk and that soon became filled with a couple of new vendors that focused squarely on energy credit risk management. Both started out with some large, high-profile customer wins but as the dust settled over the death of the merchants, the focus went back to other forms of risk and trading needs generally.

Had you asked the precursor of Comtech back then about credit risk, we would have told you it was a smallish market by comparison to CTRM and that it was extremely lumpy in terms of revenues for the vendors in that space. Interest was dictated by bad news in that each time an energy or commodity trading firm went belly up, there was a short-lived interest in credit software. The two original vendors therefore struggled a bit to grow adding a small number of customers each time the industry reacted to a credit-related event with sales having a long sales cycle. Indeed, each was acquired several times by other vendors – sometimes in energy & commodities and sometimes by more general FinTech vendors. Of course, credit requirements continued to evolve through time as along with technology. Not only did high-profile credit-related events drive momentary interest but through time, more general events like the financial crisis also created some level of demand for credit solutions specific to energy and commodities.

In 2009, CubeLogic was formed with an eye on the energy credit market and new technology by Lee Campbell and a colleague. Lee had also been with one of the two early vendors and had a career of working in credit risk particularly in energy and commodities. Credit has seen increasing focus in the industry over the years helping to drive interest in CubeLogic’s solution and more recently, Liquidity risk has also become an important focus for firms as in places like Europe, as power & gas prices exploded on the back of largely geopolitical events.

CubeLogic’s comprehensive capabilities around credit – including what Comtech calls the areas of credit risk software – quick and easy capture and enrichment of data from other systems like ETRMs, exchanges, ERP solutions and so on, ability to capture and create credit ratings and limits for counterparties and ability to perform on demand analytics around credit exposures incorporating all forms of collateral etc. – has meant that CubeLogic is thought of as the leading supplier of credit software in the industry. Indeed, it is also an area where it has few true competitors.

In the interim, CubeLogic has not stood still and has extended its risk coverage into price and market risk, risk aggregation and via a smart acquisition of its own several years ago, into trade surveillance and regulatory risk. It’s trade surveillance solution, specifically designed for energy and commodities, has also become one of, if not the leading solution in the space. The combination of its unique approach to physical commodity markets and commodity trading-specific abuse patterns is a clear differentiator in this area. In the market risk area, CubeLogic has found traction where clients want good risk analytics out of the box without the need for an army of quants and specialists to support it.

With over 170 staff and 50 global clients’ companies, it has become a real force in the industry. As its website states, CubeLogic is about “enabling timely risk analysis to mitigate exposure and maximise returns on marketing and trading activity in energy, commodity and financial markets.” A recent round of financing is also now available to the company to pursue its objectives even more effectively.

CubeLogic has emerged from the world of credit risk in energy and commodities to offer a broader set of risk tools in the cloud around its cube technology. It has achieved this largely via word of mouth. The energy & commodity risk software space has historically been dominated by small, niche vendors offering diverse sets of software tools and consulting and so CubeLogic is likely now the leading supplier in that software category by virtue of its broad capabilities, customer base and size. The next few years will however, be critical in terms of future growth and it will need to continue to innovate technologically as well as add new functionalities and even software solutions.