The Big Loser Is Known, but What About the Big Winners? http://www.nytimes.com/2006/09/20/business/20winners.html By ALEXEI BARRIONUEVO and CLIFFORD KRAUSS Published: September 20, 2006 CHICAGO, Sept. 19 â Even as Amaranth Advisors lost billions of dollars betting, in essence, that natural gas prices would rise, reports began streaming out from the energy trading industry that more fortunate traders raked in big profits in recent weeks counting on gas prices to fall. The energy portfolio overseen by Brian Hunter, Amaranthâs chief energy trader, who is based in Calgary, Alberta, lost more than $3 billion in the recent downturn in gas prices, the company told its investors on Monday. So who won out? âThere were lots of people on the other side,â said William Wallace, a trader at the New York Mercantile Exchange with Man Financial. âWhen a guy like that flames out, everybody gets a piece. It was like smelling blood in the water.â Still, who won and exactly how much remains largely shrouded in mystery, underscoring the secretive nature of hedge funds, which are unregulated and do not have to report their wins and losses in over-the-counter financial trades. Instead, the energy markets, with active traders not only here in the Chicago trading pits but in New York, Houston, London and elsewhere as well, have been rife with speculation about who was on the other side of Mr. Hunterâs bad bet. No rumor has been bigger than the one involving John D. Arnold, the head of Centaurus Energy in Houston. Several traders said that Mr. Arnold, a former star natural gas trader at Enron, had been playing a âgame of chickenâ with Mr. Hunter since about May, squaring off with opposing views on where natural gas prices were heading. But there seemed little truth to that theory, according to one person who has seen trading records. He said that Centaurus had not taken a directly opposite position to Amaranth and had not chalked up spectacular gains in recent weeks. Instead, the winning hands in the natural gas betting game seemed to be diffused more broadly across hedge funds, banks and even major oil companies like BP, according to interviews with energy traders, consultants and firms that track energy hedge funds. The winners include Andy Weissman, the owner of Energy Catalyst Fund, an energy hedge fund in Washington that shorted the market in the last month or so while Amaranth remained attached to a strategy it deployed last year that no longer fit the fundamentals of the marketplace. âI find it almost amazingâ that Amaranth could make such a bad call, Mr. Weissman said Tuesday in an interview. The losses, he said, âwere completely avoidable.â Mr. Weissman would not discuss the details of his positions or how much money he made being short on natural gas. But Mr. Weissman said that he bet that natural gas prices had become overheated in the spring, when Mr. Hunter was building his position at Amaranth. As summer demand for air-conditioning faded, the cash market price of gas, a key fuel for power companies, was expected to drop, Mr. Weissman said. âMany, many people saw that coming,â he said. He made money shorting natural gas in April and early May and then by late May he covered all his short positions. Through the summer, he made short-term trades, content to preserve capital while waiting for the glut he said he had long expected. âThen toward the end of August we expanded our short positions because we saw that the massive supply glut that we anticipated all along for the fall was developing,â he said. âA lot of hedge funds have made a lot of money in the last few weeks.â Other traders agreed with that sentiment on Tuesday, calling into question the strategy of Amaranthâs natural gas bets, a trade that had generated huge profits in recent years. Amaranth has declined to comment beyond its statement to investors. A call to Mr. Hunterâs home in Calgary on Tuesday was not returned. Market analysts said that several major oil companies that sold their natural gas ahead of time by locking in the higher prices in the market earlier this year were also most likely winners from the recent drop. While Amaranth is probably at one extreme, John Kilduff, an energy analyst with Fimat USA, said that he expected more hedge funds to report losses. MotherRock, a $430 million commodities fund started by Robert Collins, the former president of the New York Mercantile Exchange, imploded in August after betting wrong on natural gas prices. The number of energy-related hedge funds has ballooned to at least 525 with $67.4 billion in assets under management, according to Peter C. Fusaro, a principal at the Energy Hedge Fund Center, which tracks such funds. So much capital has been deployed to energy trading that it has overwhelmed the ânaturalâ players in the market like utilities and industrial users of natural gas. That has meant that the funds have often found themselves trading with each other, increasing the volatility of prices, energy analysts said. âWe have all been waiting for the proverbial other shoe to drop,â Mr. Kilduff said. But one firm that is not likely to report such losses is Centaurus, which has steadily grown into a premier energy-trading hedge fund. Mr. Arnold started the fund in August 2002, after Enronâs spectacular collapse in late 2001, beginning it largely with the $8 million bonus he earned from Enron in its last year. More recently, the firmâs assets under management have grown to some $3 billion.