Shepherd Energy Fund, the hedge fund that opened in 2004 to exploit price swings in European energy markets, stopped trading crude oil and emission permits after losing money a third straight year.
Shepherd Energy AB, the Stockholm-based manager of the fund, will concentrate on long-term positions in the Nordic power market, Arne Oesterlind, a fund manager at Shepherd, said yesterday by phone. Net asset value fell 4.8 percent in 2012 from a year earlier, according to the fund’s latest e-mailed monthly report. It lost 8 percent in 2011 and 2.5 percent in 2010, and has returned 29 percent since its inception.
“A third year of losses has prompted us to alter our strategy starting this month, scaling down to Nordic power trading,” Oesterlind said yesterday by phone. “Low price levels and muted volatility in the CO2 market didn’t suit our methodology, triggering poor trading results for the past year and a half, while oil markets were too jittery and incoherent.”
Europe’s debt crisis has limited the availability of venture capital and damped interest in Nordic power among banks and funds in the past two years, Georg Aasen, the vice president of financial markets at Nasdaq OMX Group Inc.’s Oslo-based energy exchange, said last week. Trading in Nordic financial power contracts on the exchange fell 3.5 percent last year, according to a Jan. 4 report.
Returns from most Nordic power funds fell last year, company data compiled by Bloomberg show. In the first 11 months of last year, Norwatt AS’s Nordic Power Focused and Nordic Power Balanced funds posted losses of 13 percent and 12 percent respectively, while Coeli AB, a Stockholm-based manager in charge of the Power Surge hedge fund, lost 8.25 percent.
Shepherd Energy’s fund manages less than 50 million Swedish kroner ($7.8 million), which it aims to increase to as much as 600 million kroner, Oesterlind said. The fund targets annual net returns of 12 to 15 percent, according to its website. Mattias Hellberg and Andreas Edlund help Oesterlind manage the fund.
The new investment strategy will include longer-term positions in Nordic power markets, after fast-changing weather conditions led to losses from buying and selling electricity last month, Oesterlind said.
“Back-testing results of our new strategy look promising,” he said. “We’ll try to take positions for longer periods to avoid getting caught up in the daily noise of fluctuating price signals.”
Nasdaq OMX’s energy exchange in Oslo, the operator of the world’s largest power derivatives market, handled 1,663 terawatt-hours of Nordic power futures and forward contracts last year, down from 1,723 terawatt-hours in 2011.
EU emission permit prices fell to records last year as the European Commission, which oversees the bloc’s emissions-trading system, struggled to contend with an excess of permits in the market. Permits for December 2012 declined 12 percent last year as of their Dec. 17 expiration, after falling as low as 5.61 euros ($7.48) a metric ton on Dec. 5.
Brent crude for month-ahead settlement on the London-based ICE Futures Europe exchange rose 3.5 percent in 2012 to $111.11 a barrel, after rising as high as $128.40 on March 1 and dropping to $88.49 on June 22.