Energy hedge funds: risk and opportunities

Abstract

Institutional and private investors have shown increasing interest in recent years in energy hedge funds. The main reasons why institutional investors have invested in these funds are potential for high returns as well as the diversification benefits versus traditional equily and fixed income investments.

In this article, we analyze the opportunities and risks of energy hedge funds with particular emphasis on two recent energy hedge fund debacles, Amaranth Advisors and MotherRock. We conclude by offering a series of lessons for investors in these funds, which have become available in Spain after the new regulation on hedge funds has been approved