Hedge Funds Pull Back From Commodities

Apr 16 2014 | 2:30pm ET

Two years after calling for limits on hedge funds’ role in the commodities markets, a pair of United Nations economists say that hedge funds are limiting themselves.

David Bicchetti and Nicolas Maystre of the UN Conference of Trade and Development said that the latest data shows banks and hedge funds are playing a smaller role in commodities markets since 2008. “As financial investors including banks and hedge funds have reduced their activity in commodities markets in the last two years, we’ve seen a marked drop in the correlation between the returns on the equity markets and the returns on oil and other commodities futures markets,” Bicchetti told Reuters.

Still, he and his colleague believe that further regulations are necessary to ensure that things stay that way, keeping volatility in check and commodity prices more linked to supply-and-demand.

“High levels of speculative activity have made commodity markets less stable than they used to be, and there is still an argument for greater regulation and potentially intervention in times of heightened market activity,” Maystre said.

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