Amaranth Advisors

Amaranth Advisors
Private
Industry Hedge funds
Founded 2000
Founder Nicholas Maounis
Headquarters Greenwich, Connecticut, United States
Total assets $9 billion (at its peak)

Amaranth Advisors LLC was an American multi-strategy hedge fund founded by Nicholas Maounis and headquartered in Greenwich, Connecticut. During its peak, the firm had up to $9 billion in assets under management before collapsing in September 2006, after losing in excess of $5 billion on natural gas futures.[1] The firm's failure was one of the largest known trading losses and hedge fund collapses in history.

History

The company was founded in 2000 by Nicholas Maounis and based in Greenwich, Connecticut. Throughout much of its history, convertible arbitrage was the firm's primary profit vehicle.

During 2004-2005, the firm shifted its emphasis to energy trading by Canadian trader Brian Hunter who invested in the natural gas market. Hunter had made enormous profits by being bullish on natural gas prices in 2005 after Hurricane Katrina curtailed production. Hunter invested heavily in natural gas futures which resulted in a loss of $6.5 billion when prices failed to move as expected.[2] This led to considerable debate and increased media attention about risk management practices to prevent catastrophic losses.[3]

The fund had up to $9 billion under management and reports indicated their losses may have exceeded 65 percent of their investment.[4] Amaranth transferred its energy portfolio to a third party consisting of Citadel LLC and JPMorgan Chase.[5] On September 29, 2006, Amaranth's founder sent a letter to fund investors notifying them of the fund's suspension and on October 1, 2006, Amaranth hired the Fortress Investment Group to liquidate its assets.

On July 25, 2007, the Commodity Futures Trading Commission (CFTC) charged Amaranth and Hunter with attempting to manipulate the price of natural gas futures.[6] Additionally, the Federal Energy Regulatory Commission charged Amaranth, Hunter and trader Matthew Donohoe with market manipulation.[7] The CFTC and the FERC had conflicting versions of what Hunter did, and are currently competing over jurisdiction.[8]

On January 22, 2010, a Federal Energy Regulatory Commission administrative law judge ruled that Hunter violated the Commission's Anti-Manipulation Rule. Judge Carmen Cintron found that "Hunter intentionally manipulated the settlement price of the at-issue natural gas futures contracts. His trading was specifically designed to lower the NYMEX price in order to benefit his swap positions on other exchanges." The decision is subject to review by the Commission.[9]

Amaranth filed a lawsuit against JP Morgan claiming $1 billion in damages, on the grounds that the bank interfered in the company's efforts to strike a better deal with Goldman Sachs and Citadel LLC.[10] In December 2012, the New York State Court of Appeals upheld an earlier dismissal of the case. During the collapse of Amaranth Advisors, Centaurus was credited as being one of the major players on the other side of their position.

References

  1. ↑ Jacque, Laurent L. (2010). Global Derivative Debacles: From Theory to Malpractice. Singapore: World Scientific. ISBN 978-981-283-770-7. Chapter 5: Amaranth Advisors LLC, pp. 49–72.
  2. ↑ Anderson, Jenny (2006-09-29). "Betting on the Weather and Taking an Ice-Cold Bath". New York Times. Archived from the original on July 1, 2011. Retrieved April 23, 2010.
  3. ↑ "NDTV Interview on Amaranth Losses". NDTV INDIA. 2006-09-21.
  4. ↑ "Goldman, Morgan hit by Amaranth losses". CNNMoney. 2006-09-20.
  5. ↑ "Amaranth says to transfer energy portfolio". Reuters. 2006-09-20.
  6. ↑ "U.S. Commodity Futures Trading Commission Charges Hedge Fund Amaranth and its Former Head Energy Trader, Brian Hunter, with Attempted Manipulation of the Price of Natural Gas Futures". CFTC. 2007-07-25.
  7. ↑ "Commission Takes Preliminary Action in Two Major Market Manipulation Cases" (PDF). Federal Energy Regulatory Commission. 2007-07-26.
  8. ↑ The Man Who Lost 6B
  9. ↑ Opalesque (26 January 2010). "FERC Rules that Amaranth's Brian Hunter Practiced Manipulation".
  10. ↑ "Amaranth Sues JPMorgan for Disrupting Transactions (Update2) : Bloomberg". Bloomberg. 2007-11-14.

Further reading

External links

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