Royal Gazette – A mood of caution has subdued high-risk hedge funds after losses stemming from a more than 25 percent fall in oil prices and as typically conservative pensions and banks look to makeuse of them.
The highest profile victim of falling energy prices so far has been U.S. fund Amaranth Advisors, which in September suffered a $6.4 billion (3.4 billion pound) loss — the worst hedge fund loss ever.
“Hedge funds have been losing money recently, which has a remarkable effect in terms of moderating behaviour,” said Nigel Saperia of trading house Glencore.
But rising levels of activity on the two biggest oil markets the New York Mercantile Exchange (NYMEX) and the ICE futures platform suggest hedge funds are not abandoning energy and there could be room for more to enter the market, analysts said.
More cautious market players have also lost money as oil prices have sunk from a record of $78.40 for U.S. crude hit in July this year to a low in October of $56.55.
Institutional investors, such as pension funds and banks, have been stung by an unusual market structure, which has meant their standard, passive approaches to accessing oil have not delivered returns.
Alternative, more active strategies could include using hedge funds.
“I would say it’s part of a shift from passive to active positions,” said Mike Wittner, analyst at Calyon investment bank. “It’s part of the maturing of commodities as an asset class.”
