Amaranth Advisors
Encyclopedia
Amaranth Advisors LLC was an American investment adviser managing multi-strategy hedge fund
founded by Nicholas Maounis and headquartered in Greenwich, Connecticut
. The firm had up to $9 billion in assets under management
and collapsed in September 2006 after losing in excess of $5 billion on natural gas
futures
. The firms failure was one of the largest known trading losses and hedge fund collapses in history.
. Throughout much of the 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. This led to considerable debate and increased media attention about risk management practices to prevent catastrophic losses.
The fund had up to $9 billion under management and reports indicated their losses may have exceeded 65 percent of their investment. Amaranth transferred its energy portfolio to a third party consisting of Citadel LLC and JPMorgan Chase. 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 Attempted Manipulation of the Price of Natural Gas Futures including making false statements to the New York Mercantile Exchange
(NYMEX). Additionally, the Federal Energy Regulatory Commission
charged Amaranth, Hunter and trader Matthew Donohoe with market manipulation. The CFTC and the FERC had conflicting versions of what Hunter did, and are currently competing over jurisdiction.
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.
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
. During the collapse of Amaranth Advisors, Centaurus was credited as being one of the major players on the other side of their position.
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
founded by Nicholas Maounis and headquartered in Greenwich, Connecticut
Greenwich, Connecticut
Greenwich is a town in Fairfield County, Connecticut, United States. As of the 2010 census, the town had a total population of 61,171. It is home to many hedge funds and other financial service companies. Greenwich is the southernmost and westernmost municipality in Connecticut and is 38+ minutes ...
. The firm had up to $9 billion in assets under management
Assets under management
Assets under management is a financial term used denote the market value of funds being managed by a financial instutition on behalf of its clients, investors, depositors, etc. This metric is a sign of size and success against competition...
and collapsed in September 2006 after losing in excess of $5 billion on natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
futures
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
. The firms 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, ConnecticutGreenwich, Connecticut
Greenwich is a town in Fairfield County, Connecticut, United States. As of the 2010 census, the town had a total population of 61,171. It is home to many hedge funds and other financial service companies. Greenwich is the southernmost and westernmost municipality in Connecticut and is 38+ minutes ...
. Throughout much of the its history, convertible arbitrage
Convertible arbitrage
Convertible arbitrage is a market-neutral investment strategy often employed by hedge funds. It involves the simultaneous purchase of convertible securities and the short sale of the same issuer's common stock....
was the firm's primary profit vehicle.
During 2004-2005, the firm shifted its emphasis to energy trading by Canadian trader Brian Hunter
Brian Hunter (trader)
Brian Hunter is a Canadian natural gas trader for the now closed Amaranth Advisors hedge fund. Amaranth, which had over $9 billion in assets, collapsed in 2006 after Hunter's gamble on natural gas futures market went bad.-Early life:...
who invested in the natural gas market. Hunter had made enormous profits by being bullish on natural gas prices in 2005 after Hurricane Katrina
Hurricane Katrina
Hurricane Katrina of the 2005 Atlantic hurricane season was a powerful Atlantic hurricane. It is the costliest natural disaster, as well as one of the five deadliest hurricanes, in the history of the United States. Among recorded Atlantic hurricanes, it was the sixth strongest overall...
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. This led to considerable debate and increased media attention about risk management practices to prevent catastrophic losses.
The fund had up to $9 billion under management and reports indicated their losses may have exceeded 65 percent of their investment. Amaranth transferred its energy portfolio to a third party consisting of Citadel LLC and JPMorgan Chase. 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
Fortress Investment Group
Fortress Investment Group LLC is an investment management firm based in New York, New York. The company went public on February 9, 2007.-History:...
to liquidate its assets.
On July 25, 2007, the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
(CFTC) charged Amaranth and Hunter with Attempted Manipulation of the Price of Natural Gas Futures including making false statements to the New York Mercantile Exchange
New York Mercantile Exchange
The New York Mercantile Exchange is the world's largest physical commodity futures exchange. It is located at One North End Avenue in the World Financial Center in the Battery Park City section of Manhattan, New York City...
(NYMEX). Additionally, the Federal Energy Regulatory Commission
Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission is the United States federal agency with jurisdiction over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates...
charged Amaranth, Hunter and trader Matthew Donohoe with market manipulation. The CFTC and the FERC had conflicting versions of what Hunter did, and are currently competing over jurisdiction.
On January 22, 2010, a Federal Energy Regulatory Commission
Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission is the United States federal agency with jurisdiction over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates...
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.
Amaranth filed a lawsuit against JP Morgan claiming $1 billion in damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
, on the grounds that the bank interfered in the company's efforts to strike a better deal with Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
and Citadel
Citadel
A citadel is a fortress for protecting a town, sometimes incorporating a castle. The term derives from the same Latin root as the word "city", civis, meaning citizen....
. During the collapse of Amaranth Advisors, Centaurus was credited as being one of the major players on the other side of their position.