LONDON (Bloomberg) — Hedge funds including Shepherd Energy Fund and Bermuda-based Electris Energy Fund Ltd. are expanding from Nordic electricity trading to deal in German power contracts as they seek to diversify portfolios and attract more investors.Shepherd Energy AB, which runs a $15 million hedge fund, began trading electricity in Germany this autumn and has bought stakes in renewable energy companies in the country as it expands beyond its Nordic home market, Stefan Skrimsjoe, chief executive officer, said today in a telephone interview from Stockholm.

“The Nordic market has been very volatile this year and we wanted to diversify our portfolio,” Skrimsjoe said. Shepherd has dealt in German power for next year and 2008, and also traded oil contracts in the US, he said.

Skrimsjoe declined to say which renewable energy shares the fund bought.

Hedge funds and banks, including UBS AG and Citigroup Inc, are expanding coverage of European power as they seek new revenue streams from energy desks. Traders are expanding their geographical coverage of power contracts as more cables between regions cause prices to converge.

Electris, based in Bermuda, is seeking to raise about $65 million in the next two years and plans to begin trading German electricity in the first half of next year, Daniel Dahlin, chief investment officer, said yesterday in a phone interview.

Expanding trading to German electricity may attract fund investors interested in Europe’s biggest power market, Dahlin said. “We want to grow the fund, and trading just the Nordic market is not enough,” he said.

Electris, registered in Bermuda, began trading in June and had $14 million in assets under management by the end of last month. Electris managers want to build the fund to at least $100 million in the next two years, Niklas Lund, head of asset management, said yesterday in a telephone interview. The fund targets an annual return of 20 percent.

“You have to understand the German market if you trade on Nord Pool,” said Dag A. Rosmo, managing partner at Oslo-based Interkraft Capital Management ASA, in a telephone interview yesterday.

By trading in Germany, Interkraft can also trade the spread, the price difference between the two markets for a particular contract, Rosmo said.

The $65 million Interkraft Energy Fund, set up more than five years ago, is starting German power trading next month, Rosmo said.

Interkraft initially planned to start in the summer, but the venture was delayed because of “technical details,” he said.

Interkraft plans to deal via UBS on the European Energy Exchange AG. The company also plans to trade carbon emission credits on the European Climate Exchange. The fund is trading Nordic power contracts and emission credits on Nord Pool. It has gained 14.8 percent this year, according to a document on its Web site.

Electris has attracted money from private investors in Asia and Sweden. It’s targeting European and US institutional investors, as well as international funds that invest in other funds, for further growth, Lund said. Since it began trading at the end of June, Electris has returned 3.3 percent.

Electris has about 150 investors in the fund, with $750,000 the biggest sum, Lund said.

Dahlin, 35, has nine years of energy and commodities trading experience. He left Vattenfall AB in May to take charge of trading at Electris after a four-year stint at the Nordic region’s biggest utility, where he was promoted to head of Nordic power trading in 2005.

He began his career with Stockholm Energi and prior to joining Vattenfall in 2002, worked as a trader with Mirant Corp. in Amsterdam.

Shepherd Energy Fund has returned 3.9 percent this year, according to its Web site.

Electricity prices on the regional Nord Pool exchange for next quarter have declined 51 percent since reaching a peak on August 21. The contract traded today at 40.70 euros a megawatt hour.