Investing in energy hedge funds has become riskier business, according to the Energy Hedge Fund Center, referring the recent meltdowns and shut downs in energy-focused HFs. “Energy trading markets have changed with more intraday price volatility caused by speed fund trading,” Peter Fusaro, a principal at EHFC, said in a statement. “Trying to use older trading strategies have failed some funds. We expect more blowups to come as many energy traders have not adapted to the new trading reality.” Gary Vasey, another principal at the center, added that the traditional approach is a dangerous. “This mechanistic approach also speaks to a lack of understanding on the part of the majority of investors as to the underlying additional risks inherent in the energy industry.” Vasey stressed that energy may be a hot class but warned, “energy expertise is required to perform proper due diligence and to insure that effective risk mitigation is in place.” As the duo wrote in a recent article, which mentioned how some energy HF investors got burnt, “The moral of the story… is simply don’t be greedy and understand and mitigate your risks.”
