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Amaranth Halts Withdrawals;
Talks With Citigroup Falter
By HENNY SENDER and GREG ZUCKERMAN
September 30, 2006; Page B3
Amaranth Advisors LLC, the hedge fund that lost $6 billion in September, announced that it is suspending withdrawals while it sells its remaining investments.
The decision by the hedge fund came after talks about a possible purchase of assets by Citigroup Inc. broke down, according to someone familiar with the matter.
"This temporary suspension of redemptions will enable the Amaranth funds to generate liquidity for investors in an orderly fashion," Amaranth founder and chief executive Nick Maounis said in a letter to investors. He added, "Our current intention is to dispose of the remaining positions in the funds' portfolios in an orderly fashion over time, seeking to maximize sales proceeds and to make periodic cash distributions to investors on a pro rata basis."
The letter held out hope that Amaranth could survive in some fashion, but it effectively signals the end of one of the most spectacular collapses ever in the hedge-fund industry. It began earlier this month, when the fund told investors that it had lost billions. Most of those losses were at the hands of its star energy trader, Brian Hunter, who made natural-gas bets that went disastrously wrong. Once word of the losses spread, investors began demanding their money back.
It is unclear how much money the investors will get back. The fund's estimate of how much it lost has steadily increased since it first disclosed the problem on Sept. 11. In a Sept. 20 letter, Mr. Maounis told investors that the multistrategy fund, which managed $9.5 billion as recently as August, had loss "approximately 65% month-to-date." The CEO's letter on Friday said the losses could be as much as 70% as of Sept. 29. Year to date, the fund said it is down as much as 60%. But as accountants go over the fund's books to evaluate how accurately the fund valued its investments, they could find further losses.
Amaranth has sold some investments and handed off its troubled energy portfolio to J.P. Morgan Chase & Co. and hedge fund Citadel Investments.
The blowup is likely to result in extensive litigation. The new letter said that withdrawal requests received before Aug. 31 had been honored. In past hedge-fund collapses, there have been attempts by investors to recoup money from those who got out just before big losses. There is a ray of hope for investors, according to money managers familiar with Amaranth's sale of assets. Some of the investments -- including European bank loans and U.S. mortgage securities -- have fetched higher-than-expected prices, these people say. Some of these assets are in markets with relatively few buyers and sellers, so some had expected a fire sale that hasn't emerged.
In a conference call with investors on Sept. 22, Mr. Maounis defended the firm's energy trading and rejected suggestions that investors weren't warned that its natural-gas portfolio was growing, pointing to monthly updates about those trades.
The new letter says the firm is trying to reduce operating expenses while retaining key staff to manage the winding down process. Based in Greenwich, Conn., Amaranth still has about 200 employees.
The letter said Amaranth continues to seek "strategic alliances that would enable the continued operation of the Amaranth platform." A once-giant hedge fund's trading infrastructure is a valuable asset, but it could end up being of little use if its best traders move elsewhere.
Talks With Citigroup Falter
By HENNY SENDER and GREG ZUCKERMAN
September 30, 2006; Page B3
Amaranth Advisors LLC, the hedge fund that lost $6 billion in September, announced that it is suspending withdrawals while it sells its remaining investments.
The decision by the hedge fund came after talks about a possible purchase of assets by Citigroup Inc. broke down, according to someone familiar with the matter.
"This temporary suspension of redemptions will enable the Amaranth funds to generate liquidity for investors in an orderly fashion," Amaranth founder and chief executive Nick Maounis said in a letter to investors. He added, "Our current intention is to dispose of the remaining positions in the funds' portfolios in an orderly fashion over time, seeking to maximize sales proceeds and to make periodic cash distributions to investors on a pro rata basis."
The letter held out hope that Amaranth could survive in some fashion, but it effectively signals the end of one of the most spectacular collapses ever in the hedge-fund industry. It began earlier this month, when the fund told investors that it had lost billions. Most of those losses were at the hands of its star energy trader, Brian Hunter, who made natural-gas bets that went disastrously wrong. Once word of the losses spread, investors began demanding their money back.
It is unclear how much money the investors will get back. The fund's estimate of how much it lost has steadily increased since it first disclosed the problem on Sept. 11. In a Sept. 20 letter, Mr. Maounis told investors that the multistrategy fund, which managed $9.5 billion as recently as August, had loss "approximately 65% month-to-date." The CEO's letter on Friday said the losses could be as much as 70% as of Sept. 29. Year to date, the fund said it is down as much as 60%. But as accountants go over the fund's books to evaluate how accurately the fund valued its investments, they could find further losses.
Amaranth has sold some investments and handed off its troubled energy portfolio to J.P. Morgan Chase & Co. and hedge fund Citadel Investments.
The blowup is likely to result in extensive litigation. The new letter said that withdrawal requests received before Aug. 31 had been honored. In past hedge-fund collapses, there have been attempts by investors to recoup money from those who got out just before big losses. There is a ray of hope for investors, according to money managers familiar with Amaranth's sale of assets. Some of the investments -- including European bank loans and U.S. mortgage securities -- have fetched higher-than-expected prices, these people say. Some of these assets are in markets with relatively few buyers and sellers, so some had expected a fire sale that hasn't emerged.
In a conference call with investors on Sept. 22, Mr. Maounis defended the firm's energy trading and rejected suggestions that investors weren't warned that its natural-gas portfolio was growing, pointing to monthly updates about those trades.
The new letter says the firm is trying to reduce operating expenses while retaining key staff to manage the winding down process. Based in Greenwich, Conn., Amaranth still has about 200 employees.
The letter said Amaranth continues to seek "strategic alliances that would enable the continued operation of the Amaranth platform." A once-giant hedge fund's trading infrastructure is a valuable asset, but it could end up being of little use if its best traders move elsewhere.