Crude Awakening

By Paul McMorrow | Boston Magazine |

Not all Bostonians complain when heating costs rise. How hedge-funders might be profiting from your growing oil bill.

With near-record oil prices, and heating bills expected to skyrocket this winter, weary consumers have no shortage of culprits to blame: political instability in oil-rich nations, unbuilt wind farms, that kind of stuff. But Secretary of the Commonwealth Bill Galvin has added a target closer to home—namely, hedge fund managers, of the ilk that’s colonized Boston’s posh office towers.

He says their sin, as illustrated above, comes from heavy investment in oil on the energy commodities market, a legal but unregulated practice that he pegs as harmful. “Hedge funds are like the jet stream,” he argues. “They’re high above ground, moving whatever way they want, but they have a significant impact on what’s below.” And although Boston’s become one of the global centers of private capital management, such funds rarely discuss their holdings and are exempt from traditional SEC oversight, so it’s difficult to say who is involved locally.

Galvin’s been raising a stink about his theory, firing off letters to Congress and begging the SEC to monitor funds’ activities more closely. India’s petroleum secretary and OPEC officials have recently echoed him, but that’s unlikely to change things. And anyway, not everyone’s convinced. Gilbert Metcalf, an economist at Tufts University, says the global oil market is “simply too big to be easily manipulated” by a few savvy investors.

Several area funds would not comment, though at least one firm has shown an appreciation for high oil prices: The corporate literature for John W. Henry & Company, the Red Sox owner’s investment company, cites energy commodities’ performance as a major factor in its recent gains.

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