http://www.thestreet.com/pf/newsanalysis/energy/10309512.html Energy Gas Trade Burns Amaranth By Matthew Goldstein Wall Street Editor 9/18/2006 4:15 PM EDT URL: http://www.thestreet.com/newsanalysis/energy/10309512.html Updated from 2:05 p.m. Amaranth, a big hedge fund, suffered huge losses last week on bad bets on natural gas trading. Observers said the revelation may explain some of the recent volatility in energy markets. "We anticipate our year-to-date losses might be in excess of 35% as we near completion of the disposition of our natural gas exposure," the hedge fund said in a letter to investors obtained by TheStreet.com. The letter is signed by the hedge fund's founder, Nicholas Maounis. A person familiar with Amaranth says the fund was up a little more than 20% for the year as recently as mid-August. Using that figure, a back-of-an-envelope calculation means Amaranth at one point was up $1.5 billion for the year. But in recent weeks it may have lost as much as $4 billion. The fund, assuming it is down 35% for the year, now has about $5 billion in assets under management. A person familiar with Amaranth says the fund lost about 60% of its value in a single week because of the bad natural gas bets. The losses were magnified by the fact that Amaranth's bets were leveraged, using borrowed money. This source says the natural gas trade was levered at a ratio of 5-to-1. A trader with another hedge fund says the news of the big loss at Amaranth may explain some unusual trading in certain stocks last week. The trader speculated that Amaranth may have been liquidating positions in some of its equity holdings to satifisy the margin calls from its prime broker. Amaranth wouldn't comment beyond its letter to investors. One commodities trading expert says the big trading loss at Amaranth shows what can happen when natural gas trades are conducted through the so-called over-the-counter marker rather than a monitored exchange such as the New York Mercantile Exchange. Michael Greenberger, a professor at the University of Maryland Law School and former director of the division of trading and markets at the Commodity Futures Trading Commission, says that if the trades conducted by Amaranth had gone through the Nymex, regulators probably would have stepped in and their questioned the activity. Greenberg says the speculation is that Amaranth may have conducted most of its trading away from the Nymex in a bid to "corner" the long contract on natural gas futures. "If that's the case, it amounts to manipulating the market," says Greenberger. "It has nothing to do with supply and demand. It's playing games in the opaque markets." Based in Greenwich, Conn., Amaranth employs more than 360 people, including 115 traders. The fund's Web site tabs its assets at $7.5 billion, and the firm has offices in Houston, Toronto, London and Singapore. Sources say assets under management may have been more than $9 billion going into September. "We have met every margin call to date," the letter continues. "We are in discussions with our prime brokers and other counterparties and are working to protect our investors while meeting the obligations of our creditors." The hedge fund reported having $2.3 billion invested in U.S. stocks as of the end of June. Several of Amaranth's big investments were Humana (HUM) , Goldcorp (GG) and Sprint (S) . A broker gives a margin call when an investor or trader does not have adequate collateral to support the amount of money it has borrowed. Even if Amaranth has been able to satisfy all of the margin calls, the big loss at the fund could have ramifications for others on Wall Street, especially institutional investors who bet on hedge funds. Some of the Wall Street firms with so-called hedge fund fund-of-funds that reported having big stakes in Amaranth include Morgan Stanley (MS) and Credit Suisse (CSR) . Amaranth is a six-year-old multistrategy fund that specializes in energy trading, merger arbitrage, convertible bond trading and regular long/short trading. Brian Hunter is the head of energy trading at Amaranth. The fund employs about 21 energy traders. The hedge fund gets its name from the Greek word amarantos, which means unfading. Even before Amaranth released a copy of its investor letter Monday, Wall Street traders were buzzing that the hedge fund had lost a ton of money on natural gas trades. The energy markets have been particularly volatile this year. Many funds have made a great deal of money riding the spike in oil prices to new heights this summer. But a number have been caught on the wrong side of trades, especially since energy prices have turned on a dime. Most notably, MotherRock, a two-year-old fund that once had nearly $450 million in assets, shut its doors in late July after losing nearly half of its value. Led by former New York Mercantile Exchange President J. Robert "Bo" Collins, MotherRock also bet wrong on natural gas prices. But unlike Amaranth, MotherRock got caught betting that natural gas would fall at a time that the commodity was soaring to new heights. The irony is that if MotherRock could have held on for another few months, it might have recovered much of its losses. Last week, MotherRock told investors it was unlikely they would get back any money of the fund.
The fund is being closely investigated to be sure that the losses are "real" and not just a deceptive attempt to walk away with the investor's money. Stay tuned.
A Hedge Fundâs Loss Rattles Nerves By GRETCHEN MORGENSON and JENNY ANDERSON Published: September 19, 2006 Enormous losses at one of the nationâs largest hedge funds resurrected worries yesterday that major bets by these secretive, unregulated investment partnerships could create widespread financial disruptions. The hedge fund, Amaranth Advisors, based in Greenwich, Conn., made an estimated $1 billion on rising energy prices last year. Yesterday, the fund told its investors that it had lost more than $3 billion in the recent downturn in natural gas and that it was working with its lenders and selling its holdings âto protect our investors.â Amaranthâs investors include pension funds, endowments and large financial firms like banks, insurance companies and brokerage firms. The Institutional Fund of Hedge Funds at Morgan Stanley was an investor in Amaranth; as of June 30, it had a stake valued at $124 million. The turnabout in the fortunes of the $9.25 billion fund reflects the decline in energy prices recently; natural gas prices fell 12 percent just last week. Yet also last week, Charles H. Winkler, chief operating officer at Amaranth, had met with prospective investors at the Four Seasons restaurant in Manhattan and reported that his fund was up 25 percent for the year, according to a meeting participant. Days later, rumors began circulating that Amaranth was losing money in one of its natural gas bets, a trade that had generated enormous profits for the fund in recent years. Late in the week, the fundâs traders began dumping large stakes in convertible bonds and high-yield corporate debt, securities that could be sold without disrupting the market. Mr. Winkler did not return a phone call seeking comment. The scale of Amaranthâs losses â and how quickly they appear to have mounted â was the talk of Wall Street yesterday, as was speculation on how much the bet was leveraged, or made on borrowed money. Still, there were no signs of ripples on the financial markets as a result. Amaranthâs woes are largely the result of a decline in natural gas prices that began in December, well before the spring months of March or April, when they typically fall off. Amaranthâs biggest stake was a combination bet on the spread between natural gas futures prices for March 2007 and those for April 2007. Amaranth had often bet that the spread on that so-called shoulder month â when natural gas inventories stop being drawn down and begin to rise â would increase. But instead the spread collapsed. In the last six weeks, for example, the spread between the two futures contracts ranged from $2.50 at the end of July to around 75 cents yesterday. Traders briefed on Amaranthâs problems, including one person who examined the fundâs books yesterday, said that the losses might be considerably larger than the firm estimated. Over the weekend, according to one person briefed on the situation, Goldman Sachs examined the fundâs positions. Amaranth is not the first hedge fund to experience problems in energy markets. MotherRock Energy Fund, a $400 million portfolio, shut down last month after losing money on its bets that natural gas prices would fall. Summer heat sent prices soaring and the fund lost 24.6 percent in June and 25.5 percent in July, according to one investor. The natural gas market is exceptionally volatile, making it an ideal playground for hedge funds that thrive on wide price movements in securities. Natural gas prices are subject to more severe swings than oil, in part because gas cannot be stored easily. Arthur Gelber, the founder of Gelber & Associates, an energy advisory and consulting firm based in Houston, said that as a result, the natural gas market was about five times more volatile than the stock market. The greatest demand for natural gas occurs during very hot or very cold weather, Mr. Gelber said. During mild periods, like early autumn, an oversupply of natural gas can cause a significant decline in price. Hedge funds have added to this natural volatility, he said. Amaranth was founded six years ago by Nicholas M. Maounis, a former portfolio manager who had specialized in debt securities at Paloma Partners, another large hedge fund. Amaranth employs a so-called multistrategy approach to investing that allows nimble portfolio managers to seize opportunities in whatever markets seem to be most promising at the time. Now that Amaranth has owned up to huge losses in a single sector, âmultistrategyââ seems to have been a misnomer at the fund. In his letter to investors, Mr. Maounis, 43, wrote: âIn an effort to preserve investor capital, we have taken a number of steps, including aggressively reducing our natural gas exposure.â Amaranth has additional offices in Houston, London, Singapore and Toronto and employs 115 traders, portfolio managers and analysts, according to its Web site. The firm deploys capital âin a highly disciplined, risk-controlled manner,â it noted. Its energy portfolio has been overseen by Brian Hunter, a trader who joined the fund from Deutsche Bank in 2004 and conducts trades from his hometown of Calgary, Alberta. Mr. Hunter made enough money at Amaranth in 2005, an estimated $75 million to $100 million, to place him among the 30 most highly paid traders in Trader Monthly magazine. Rocaton Investment Advisers, a consulting firm in Norwalk, Conn., whose clients have $235 billion in assets, recommended Amaranth to its customers. Yesterday, Robin Pellish, Rocatonâs chief executive, declined to comment on her firmâs relationship with the fund or to identify clients that it had advised to invest in it. âWeâre well aware of the situation with Amaranth and we are monitoring developments,â Ms. Pellish said. Citing Amaranthâs woes, Stewart R. Massey, founding partner of Massey, Quick & Company, an investment advisory firm in Morristown, N.J., said, âI think it will cause investors to go back and take another hard look at the multistrategy funds they are invested in and do a deeper round of due diligence.â Mr. Massey said he did not have any exposure to Amaranth. The problems at Aramanth will help fuel a debate over whether more oversight is needed over hedge funds, which have become increasingly powerful forces in the markets. There are nearly 9,000 hedge funds, managing more than $1.2 trillion in assets. In 1990, hedge funds managed just $38.9 billion, according to Hedge Fund Research. Last week, in a speech in Hong Kong, the president of the Federal Reserve Bank of New York, Timothy F. Geithner, said greater attention needed to be paid to the margin requirements and risk controls in dealings with hedge funds. The growth in hedge funds, Mr. Geithner noted, will eventually âforce us to consider how to adapt the design and scope of the supervisory framework to achieve the protection against systemic risk that is so important to economic growth and stability.ââ In 2004, Amaranth protested a new rule proposed by the Securities and Exchange Commission that would have required certain hedge funds to register with federal regulators and undergo greater scrutiny. âContrary to media stereotypes of hedge fund managers, Amaranth does not âoperate in the shadowsâ outside of regulatory scrutiny,â its general counsel wrote. âWe do not understand why the commission is proceeding so urgently with this rulemaking when the public policy problem to be addressed remains poorly defined and the proposed regulatory response is so burdensome.â The rule, which was issued in late 2004, was struck down in June by the United States Court of Appeals for the District of Columbia. Last month, the S.E.C. declined to appeal the ruling.
FUND FLAMEOUT GAS BET GONE BAD TORCHES HEDGIES IN A $5B INFERNO By ZACHERY KOUWE and RODDY BOYD September 19, 2006 -- Hedge fund giant Amaranth Advisors was clinging to life yesterday as its traders scrambled to sell holdings after a harebrained wager on natural gas cost the firm roughly half of its $9.5 billion portfolio - the second hedge fund disaster this month caused by the volatile energy markets. Across Wall Street, Amaranth's brokers - including Goldman Sachs, Bank of America and other big financial institutions - were trying to raise cash for the firm by liquidating its other bonds and stocks, traders said yesterday. And the fire sale is expected to continue the rest of the week. "These are good trades," said one hedge fund manager who bought Amaranth convertible bond positions from Morgan Stanley. "They would not give them up unless they had to." Amaranth, started in 2000 by former Paloma Partners' hedge fund guru Nicholas Maounis, was up nearly 30 percent before management fees this year, and its asset base had grown to a whopping $9.5 billion. At the firm's Greenwich, Conn., offices, four security guards and local police kept a close watch over the building. After studying weather patterns and other data, Amaranth made an enormous wrong-way bet that a Katrina-like hurricane would cause the difference between summer and winter natural gas prices to widen dramatically. Instead, a mild hurricane season caused that spread to collapse, wiping out about $5 billion in value. "I can't believe they bet the whole fund on a hurricane," said one energy trader. Maounis dropped the bomb to his investors in a letter yesterday saying the firm's losses could be "in excess of 35 percent" for the year. Officials at Amaranth - whose name comes from the Greek word amarantos, meaning "unfading" - declined to comment. The losses are especially painful for Amaranth's large institutional investors, including several pension funds, university endowments and fund-of-funds managed by big brokerage houses, including Morgan Stanley, Deutsche Bank and Credit Suisse. Morgan Stanley's Institutional Fund of Hedge Funds gave $94 million to Amaranth in November 2004, which represented more than 5 percent of its fund, according to regulatory filings. Maounis will have to navigate some difficult seas in the next month, when some investors can begin pulling money out of the fund. Sources said Amaranth had devised so-called gates - which restrict client withdrawals to up to two years after investment. That will probably stave off a rush for the doors that would collapse a smaller fund. Still, about $1 billion worth of lock-up agreements will expire in the next two months, sources said. "I think Amaranth is going to die a slow and painful death," said one source. Amaranth's blow up marks the second hedge fund in the last month to be shaken by the volatile energy markets. Last month, MotherRock, a $400 million fund run by former New York Mercantile Exchange President Bo Collins, lost all of its investors' capital when the natural gas markets turned against it. Ironically, Amaranth bought a portfolio of MotherRock trades from ABN Amro's futures unit, which was left holding the bag after MotherRock collapsed. zachery.kouwe@nypost.com
BIG NAMES ON WALL ST. BURNED BY BIG LO$$ES By RODDY BOYD and ZACHERY KOUWE September 19, 2006 -- Nick Maounis, whose massive Amaranth hedge fund is teetering on the brink of disaster, blends a middle-class background with a taste for the good life. The manager, who runs his fund from a posh Greenwich office, grew up on a quiet street in North Stamford and attended his local public high school. To this day, despite making millions trading stocks and bonds, Maounis still regularly plays poker and bowls with his longtime friends. On the other hand, his wealth and stature get Maounis tee times - and foursomes - about which mere mortals can only dream. A member of the ultra-exclusive Hudson National club in Croton-on-Hudson where membership costs $200,000 and dues $10,000, he also belongs to the Jack Nicklaus-designed Bear's Club in North Jupiter, Fla., where he has a swanky house. Other times, he plays the links at Greenwich's more relaxed Burning Tree club. Known primarily as a quiet family man, Maounis does throw one of the most well- attended parties on Wall Street at his estate in Greenwich - his annual all-afternoon "Final Four" party in March - where hundreds of traders mingle, watch games and nosh on luxe catering. His right-hand man Brian Hunter's name might now be mud in the close-knit world of hedge funds, but just a few months ago he was being hailed as a Wall Street wunderkind for his prowess trading natural gas. According to published reports, SAC Capital burned for Hunter's gas-trading ability so badly that they were willing to guarantee him a $10 million bonus up front to jump ship. Hunter, 32, raked in between $75 million and $100 million last year from Amaranth, according to Trader Monthly.
nymex trader said it's a humongous position and they are still liquidatin'; it will take many days to get rid of the whole pos.
SAN FRANCISCO (MarketWatch) - Some investors are so eager to get out of their investment in Amaranth Advisors LLC that they're willing to sell their stakes in the massive hedge fund for less than half what they were worth at the end of August. Others are angry about the timing of Amaranth's disclosure of its huge trading losses, according to two hedge fund investors who requested anonymity. Amaranth could suffer year-to-date losses of 35% after natural gas trades went awry, founder Nicholas Maounis said in a letter to investors that was obtained by MarketWatch on Monday. See full story. Amaranth investors are now offering to sell their stakes in the fund for between 35% and 45% of the estimated net asset value at the end of August, according to Hedgebay, which operates a secondary market for hedge fund holdings. Potential buyers are interested in paying between 10% and 20% of the estimated net asset value, Hedgebay data show. Hedgebay co-Founder Jared Herman said that no trades have taken place yet, but there are a lot of investors willing to sell and several parties ready to buy. The big discounts are likely driven by concern that Amaranth's remaining assets are very illiquid and will take a long time to unwind, he explained. Amaranth has some private-equity holdings, which are difficult to value and sell quickly, he noted, adding that the hedge fund is likely to sell its positions in an orderly way over time. A spokesman for Amaranth said early Tuesday that the hedge fund would have no comment beyond the investor letter it disclosed on Monday. Hedgebay serves funds of hedge funds, banks, ultra-wealthy individuals and family offices that either want to boost their investments in a fund that won't accept new money or are trying to get out of a fund that has a long lock-up, preventing quick redemptions. See related story. Most transactions take place at a premium to the net asset value of funds, because access to top hedge-fund talent is usually limited. But Amaranth's shock announcement has sparked a run for the exits among its investors. Anger Two hedge fund investors who didn't want to be identified said there's anger at the timing of Amaranth's announcement, which may have restricted some investors from putting in redemption requests for the third quarter. On some classes of fund shares, Amaranth restricts investors to redeeming 30 days after the end of each quarter, the investors said. In order to receive a quarterly redemption, investors have to request that in writing 45 days before redemptions are due. For the third quarter, redemptions were due at the end of October. But to redeem then, investors would have had to request it 45 days earlier. That means redemption requests should have been in by the end of last week. Information about Amaranth's losses first emerged publicly on Monday. An Amaranth spokesman declined to comment when asked late Tuesday about the firm's redemption policy and the timing of its disclosure. Still, the investors also noted that Amaranth can suspend all redemptions in several other situations, including when investors representing more than 7.5% of the fund's assets ask to get out. Most investors have already put in such requests, so Amaranth is likely to freeze all redemptions, they added. http://www.hedgebay.com/
i wonder how much of that 75 to 100 mil HE put in this Amaranth tinderbox.. if any. OPM is sweet, eh?