The flood of hedge fund money into commodity markets--in particular oil--in the last three months has raised concerns with structurers working for retail and institutional clients. Hedge funds have been particularly active in the energy markets, according to traders, and their capacity to enter and exit relatively illiquid markets on short notice could upset the structured products. Their worry is that hedge funds will increase volatility and cause trading blip's, which could knock-in or knock-out options embedded in structured products.
"Producers and consumers are concerned it's turning their market into a casino," commented one structurer. "You've got to be concerned if you're a retail investor and you're the entry for somebody else's exit," he added. Even the Organization of Petroleum Exporting Countries has voiced concern about the amount of speculation in the oil market earlier this year.
Hedge fund managers, however, disagree. Hilary Till, principal at Premia Capital Management, a commodity futures trading firm, also disagreed. "The oil market is sufficiently liquid that hedge fund investment should not put it out of whack," she said. She also pointed to Commodity Futures Trading Commission data, which shows speculative investment reduced last month compared to earlier this year.
Kevin Norrish, commodities analyst at Barclays Capital in London, said, "We see fundamentals supporting a high oil price...The data does not support the idea that this is a speculative bubble."
Deutsche Bank Aussie Equity Pro Leaves
Michael Kemp, director and head of global equity derivatives trading at Deutsche Bank in Sydney, has left the firm after more than a decade. Reasons for Kemp's departure could not be determined by press time and he did not return calls to his cell phone.
Pipa Downes, equity derivatives trader in Sydney, has assumed Kemp's responsibilities. Downes, who confirmed the move, joined the firm earlier this year after a year long sabbatical. She was an equity derivatives trader at Morgan Stanley beforehand.
