Six billion dollars.
Somewhere close to six billion dollars down the drain on some natural gas investments, and all of it on the shoulders of has-been golden boy Brian Hunter, infamous at the age of 32. Looking back on the rise of Hunter in the hedge world, it seemed like he had everything going for him, at his young age he was already ranked 29th in the world for best-paid traders in 2005.
Amaranth hired the risk-taker in 2004, after a turbulent exit from his previous place of employment, Deutsche Bank (apparently there are still lawsuits pending). He quickly asserted himself at Amaranth and the dollars rolled in – until he misjudged the market (an understatement if ever there was one) and put the majority of Amaranth’s wealth on the line in one huge gamble on gas.
As someone with little formal education in this area, but who has worked for a private equity placement firm for the last two years, I can’t quite get my head around how it is that Amaranth didn’t see red flags popping up all over the place when Hunter initiated this process with his sole focus on hedging in the gas market. I can only imagine his horror as he watched gas prices take a dive, most notably in futures contracts for delivery of gas for the coming winter. How long could they wait for prices to rebound? Not long enough, and they knew it. Once the firm admitted that its value was dropping by the day they began the massive sell off of the majority of their portfolio – with huge losses for the firm and it’s investors. Wasn’t someone at Amaranth responsible for ensuring that all the proverbial eggs weren’t in one bucket? Was Mr. Hunter such a whiz that he felt he no longer had to concern himself with risk control or the ever present volatility in the natural resources market. What went wrong?
My company recently branched it’s hedge fund business off, it’s no longer under the umbrella of the main organization and now will have to show profits of it’s own and provide for itself. I wonder how a story like the Amaranth failure will affect a small Canadian hedge business such as ours, as well as other new ventures in the hedge space. Time will tell.
Unfortunately for the now unemployed Mr. Hunter and the investors in Amaranth, time isn’t always on your side.
Hedgefund.blogspot.com has another article on Amaranth that you might also enjoy reading.