Wed 20 Sep 2006
Here’s another hedge fund manager who likes to play it loose in the energy markets… but this fund’s losses are much bigger than the MotherRock implosion back in August.
Amaranth Advisors, a hedge fund with $7.5bn under management, has warned investors that its main funds are down 35 per cent or more this year after big losing bets on natural gas prices.
“We are in discussions with our prime brokers and?.?.?.?are working to protect our investors while meeting the obligations of our creditors,” Nicholas Maounis, Amaranth’s founder, said in a letter to investors.
And their selling may also be the cause of much of the downward pressure in the Natural Gas market (some speculate the situation is affecting the gold markets too):
In its letter to investors, Amaranth said it was “aggressively reducing” its natural gas positions and has so far met every margin call. … Traders said Amaranth could cause some volatility by moving quickly to liquidate holdings to meet margin calls and possible investor redemptions.
There’s also a good article at Bloomberg that gives a more sophisticated analysis of the situation than MSNBC does, as well as some of the ramifications…
Fallout from Amaranth’s meltdown spread to Goldman Sachs Dynamic Opportunities Ltd., a London-based fund that invests in other hedge funds. The fund yesterday reported losses on an investment whose description fits Amaranth, and its shares fell 3.7 percent.
… “The thing that shocks me is that they didn’t have the controls in place to avoid losing $5 billion in a week.”
I think this would qualify as the largest single fund failure since LTCM back in 1998.
September 20th, 2006 at 9:18 am
From a WSJ Excerpt: “At the end of August, trading natural gas, [Amaranth] was up approximately $2 billion for the year. Then Mr. Hunter lost roughly $5 billion, in about a week.”
Up $2 billion for the year? That’s up 36% before the bottom dropped out.
September 20th, 2006 at 9:47 am
So basically these guys just went long NG and expected it never to come down and leveraged to the hilt and more? Where can I find someone to give me that much money? I can at the very least promise not to be that stupid with it.
September 20th, 2006 at 10:04 am
Have a look at this interesting article about the difficulty of unwinding a position like Amaranth’s and the ripple effect it can have.
September 21st, 2006 at 1:14 pm
Even more fun:
“As Amaranth Advisors, the hedge fund stung by wrong-way bets on natural gas, said Wednesday that its losses had swelled to $6 billion…”
And Bill Cara has a list of the equity positions that the hedge fund was holding. There are over 1600 stocks on the list… And this was an energy hedge fund?