Hedge funds participate in fundamentally-driven strategies based on weather, inventory levels, geopolitical events and other supply and demand shocks. The underlying philosophy is to generate sustainable returns that exceed alternative investments using a variety of trading strategies including relative-value strategies such as calendar and location spreads. Capital is allocated to markets and positions that are most likely to trend. Strategies exploit the relationships between trading hubs, supply basins, export points, and city-gates. Technical analysis is also used for quantitative entry and exit levels based on historical price behavior. Option trading strategies provide profit opportunities as well as hedges for other underlying strategies within the Hedge Fund books.
Hedge funds typically utilize Fund Administration companies as part of their active transaction verification procedure. A Fund Administration company ensures that trades are entered correctly into the risk management system and that the customized reports using the BookRunner® database extract the current day's trades for reconciliation with the respective counterparties, power pools and other sources. BookRunner®'s collateral management module also provides assistance to the Credit Manager in identifying/managing margin requirements with the fund's counterparties during this reconciliation.
BookRunner® provides extensive transaction capture of energy commodities, including hourly granularity for Electricity transactions. In addition, MTM, P&L VaR, and Investor reporting along with a variety of standard reports allow for dissemination of information to all parties involved. Risk management policy compliance capabilities including confirmations, audit reports, Credit, Collateral Management, and Settlement modules provide a robust environment for Hedge Funds to operate effectively in.