WEST PALM BEACH, FL (www.hedgeco.net) – A growing number of hedge funds have rushed into the energy trading arena in search of trading returns. The markets so far this year has been tough for manyhedge funds as the competition to deliver absolute returns continues to drive such efforts. The energy trading arena is generally new to most hedge fund managers; such market involves trading ofshares of energy related firms, as well as taking positions in the crude oil futures derivative markets. Several big hedge fund managers have adopted the energy trading strategy recently. Suchmanagers include Vega Asset Management, D.E. Shaw and Citadel Investment Group. Other managers venturing into the energy markets include Centaurus Capital and Ritchie Capital Management. According toenergy trading consultant, Peter Fusaro, chairman of energy and environmental consultant Global Change Associates, up to about 300 hedge fund managers have already established a stake in the energytrading arena and the list continues to grow from year to year. According to him, energy trading has important attributes which many hedge fund managers are seeking. Fusaro said, “Energy trading isthe new big thing in the hedge-fund world, it�s a search for new returns.”
The energy markets are big, according to Fusaro, the total energy exchange traded OTC products is estimated at about $2 trillion, while the total physical energy market is worth nearly $4 trillion. There is a second reason why energy trading has appealed to hedge fund managers, energy prices could be analyzed historically, such analysis enables hedge fund managers to identify when prices have violated their historical patterns, and such development enables hedge fund managers to engage in arbitrage trading opportunities.
Fusaro also explained that the energy markets are complicated and still growing, and much of the trading is done through over the counter deals, allowing brokers to establish prices; such process bodes well for arbitrage opportunities. The next phase of energy trading may be moving in the direction of emissions trading, as the new trading arena continues to evolve.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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