Amaranth Hedge-Fund Losses Hit 3M Pension, Goldman (Update2)
By Jenny Strasburg
Sept. 20 (Bloomberg) -- 3M Co., Goldman Sachs Group Inc. and San Diego County's retirement fund say the meltdown of Amaranth Advisors LLC, the hedge-fund manager that lost about $4.6 billion in the past month, may cost them millions.
The $9.2 billion pension fund of 3M, maker of Post-it Notes and electronics and cleaning products, gave less than $92 million to Amaranth, according to Jacqueline Berry, a spokeswoman for the St. Paul, Minnesota-based company. Goldman Sachs Hedge Fund Partners LLC has about $13 million with the firm, according to a regulatory filing today.
``This will spark activity by Congress, or by regulators, for some oversight of an area that has not been watched,'' said Dan McAllister, a board member of the $7.2 billion San Diego County Employees Retirement Association. The fund invested $175 million with Amaranth in 2005.
Amaranth, named for an imaginary flower that never fades, had gained more than 25 percent earlier this year on bets natural-gas prices would rise. Prices tumbled this month, triggering losses that grew as it scrambled to unwind trades. The Greenwich, Connecticut-based firm's blowup is the biggest since Long-Term Capital Management LP almost collapsed in 1998.
In a bid to stem losses, Amaranth plans to give up its energy trades to Citadel Investment Group LLC, a $12 billion hedge fund in Chicago, and New York-based bank JPMorgan Chase & Co., two people with knowledge of the decision said today. Citigroup Inc., the largest U.S. bank by assets, may buy a stake in Amaranth.
Wall Street Clients
Amaranth has managed money for Wall Street banks Morgan Stanley, Credit Suisse Group, Deutsche Bank AG and Bank of New York Co., according to U.S. Securities and Exchange Commission filings. A $2.3 billion Morgan Stanley pool that invests in other hedge funds had about $126 million in Amaranth as of June 30, according to regulatory filings. Bank of New York allocated $10 million of a $165 million fund to the firm.
Caisse de Depot et Placement du Quebec, Canada's biggest pension-fund manager, had C$77.3 million ($68.5 million) with Amaranth at the end of 2005. New York-based Arden Asset Management, which farms out $13 billion to hedge funds, gave about $39 million to Amaranth, according to spokesman Jonathan Gasthalter.
Max Re Capital Ltd., a Bermuda-based reinsurer, may also be a casualty. The company said today third-quarter earnings will be reduced by $35 million because of losses from hedge-fund investments. Max Re didn't disclose which hedge fund caused the losses, and spokeswoman Sheila Gringley didn't respond to a phone message seeking comment.
Natural-Gas Selloff
Connecticut Attorney General Richard Blumenthal said he's examining Amaranth's losses.
``We are taking some initial steps to investigate what went so terribly wrong, whether there was a truthful and accurate disclosure to investors,'' he said today in an interview.
Tom Carson, a spokesman for U.S. Attorney Kevin O'Connor in Connecticut, declined to comment, as did Bryan Sierra, a spokesman for the Justice Department in Washington and SEC spokesman John Nester.
Natural-gas futures have plunged 17 percent this month. The losses may have been exacerbated by Amaranth's attempt to exit bets on rising prices, said Robert Van Batenburg, head of research at Louis Capital Markets LP in New York.
``The whole debacle has left Amaranth trying to unwind its positions,'' he said.
MotherRock LP, a $400 million fund run by former Nymex President Robert ``Bo'' Collins, shut last month after unsuccessful bets on the direction of natural gas.
Amaranth Equity Stakes
Both funds attempted to profit from spreads, or discrepancies in price, between different gas-futures contracts. Amaranth used loans to expand its bets, increasing its losses.
Shares of companies in which Amaranth invested have also been hurt.
The stock of Cinram International Income Fund, a Toronto- based maker of digital-video discs, fell 5.4 percent earlier this week on concern that Amaranth would sell its 15 percent stake. The shares rose 50 cents to C$22.10 at 4:30 p.m. in Toronto after the Globe and Mail reported Amaranth had received bids for its holdings.
Counsel Corp.'s stock has dropped 14 percent this week. The investment firm, also based in Toronto, said in a Sept. 18 filing with Canadian regulators that Amaranth proposed selling its 34 percent stake.
Consultant's Advice
The San Diego County pension board invested in Amaranth on the recommendation of consultants Rocaton Investment Advisors in Norwalk, Connecticut, board member McAllister said. The San Diego County fund is unconnected to the San Diego City Employees' Retirement System, which has a deficit of more than $1 billion.
``We are aware of the Amaranth situation, and we are in dialogue with our clients,'' Rocaton spokesman Todd Miller said, declining further comment.
It will take weeks to find out how much pension money melted away with Amaranth's bad trades, Damon Silvers, associate general counsel of the Washington-based AFL-CIO, said in an interview today.
The largest U.S. labor association, whose member unions hold more than $400 billion in pension assets, has criticized provisions of the pension-reform law signed by President Bush last month that loosened restrictions on pension-money flows into hedge funds.
``This shows what an appalling decision that was,'' Silvers said.
Caveat Investor
Hedge-fund investors should take Amaranth as a warning to do better homework before trusting money with a fund, said Robert Schulman, chief executive officer of Tremont Capital Management Inc., a Rye, New York-based investment firm.
``Investors need to understand the risks,'' Schulman said.
McAllister, who is also San Diego County's treasurer and tax collector, said the pension fund was led to believe by Rocaton that the Amaranth investment would reduce its risk.
``If it looks too good to be true, maybe it is,'' he said.
To contact the reporter on this story: Jenny Strasburg in New York at
jstrasburg@bloomberg.net
