* Deloitte says shift to assets entails risks
* Some firms innovate to seek funding
* Regulation, resource nationalism seen as hazards
By Emma Farge
GENEVA, Feb 11 (Reuters) - Commodity trading houses pouring millions of dollars into buying physical assets risk shifting capital away from their core business and driving out top talent, according to a study by advisory firm Deloitte Switzerland.
Following the model of Swiss commodities giant Glencore , many independent trading houses have sought to snap up assets such as oil refineries and aluminium smelters.
Last year, Geneva's Vitol and Gunvor bought refineries from insolvent oil refiner Petroplus while Trafigura said in February its subsidiary Puma acquired a network of fuel service stations in Australia.
Deloitte said that the expansion from their traditional business of spotting niche deals to buy and sell commodities would extend their control over supply lines and increase options for trading.
But, the strategic shift also entailed risks, the study warned.
"For some trading companies with less experience of operating assets, the risk exists that by vertically integrating across the supply chain in order to capture some margin, they will enter capital-intensive operations in which they have limited experience and from which an exit is not necessarily easy," the study said.
The report, released on Monday, warned that trading talent could feel "dislocated" as commodities firms morph into large, integrated corporate giants.
"If, as result of acquisitions, companies start to look and act more and more like integrated energy companies and big miners, is there a risk that the entrepreneurs who drive the trading business will chafe on their diminished roles?"
It added that departures could result in new hedge funds and spin-off trading shops.
The vogue for buying assets was also forcing trading houses, which are mostly privately owned, to find innovative ways of raising capital for the longer term in a tight credit environment as banks cut lending, the report said.
Some trading houses have already begun adapting to these challenges such as Louis Dreyfus which issued its first bond last year and Mercuria which plans to sell up to 20 percent to a strategic investor.
Another key challenge facing the sector will be the costs associated with new regulations designed to eliminate manipulation, which could push up energy and food prices, and increase transparency in the traditionally secretive sector.
"A number of new regulatory requirements, either imminent or mooted, are likely to increase not only the compliance obligations for trading companies but also, in some cases, the cost of funding," the report said.
Deloitte said that the new clearing mandate for the $648 trillion over-the-counter derivatives market under the U.S. Dodd-Frank act would reduce credit risks but force increased capital buffers.
And it said that non-compliance with "long-reach" legislation such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act had the potential to put a company out of business.
It also noted that trading companies, like major oil firms and mining firms, would also be more exposed to resource nationalism because of their investment in assets. (Editing by Ed Davies)