Amaranth Advisors, a hedge fund with $7.5bn under management, has warned investors that its main funds are down 35 per cent or more this year after big losing bets on natural gas prices.
"We are in discussions with our prime brokers and . . . are working to protect our investors while meeting the obligations of our creditors,'' Nicholas Maounis, Amaranth's founder, said in a letter to investors.
Natural gas prices have fallen more than 40 per cent since early August on strong storage levels and predictions of a mild winter.
One senior prime brokerage executive said the fact that Amaranth's main funds are now down 35 per cent meant they had lost over 50 per cent in the past few weeks.
A fund of hedge funds manager, said: "We are not very bullish for oil and gas. Where there is smoke there is fire, and they are probably not the only ones."
He added that Amaranth's funds were up about 20 per cent for the year as recently as mid-August, and that the firm's losses over the past few weeks could be as high as $4bn. Amaranth was founded in 2000 and bills itself as a multi-strategy fund specialising in energy trading, merger arbitrage, convertible bond and long-short strategies.
The fund is among the biggest players in the energy market and trades heavily with the commodities desks of large Wall Street firms. It receives prime brokerage services from Morgan Stanley, among others.
The fund made large losing bets on the difference in price between contracts for natural gas delivery in the summer and winter. Instead of widening, as Amaranth predicted, spreads have narrowed. Volatile gas prices last month led to the closure of $400m hedge fund MotherRock, run by Bo Collins, former New York Mercantile Exchange president.
In its letter to investors, Amaranth said it was "aggressively reducing" its natural gas positions and has so far met every margin call. Amaranth employs about 21 energy traders. In Greek myth its name refers to an immortal flower.
Traders said Amaranth could cause some volatility by moving quickly to liquidate holdings to meet margin calls and possible investor redemptions. Yesterday, Amaranth urged Canadian DVD and CD manufacturer Cinram to go private or consider a sale to increase shareholder value. Amaranth owns about 15 percent of Cinram.
"We are in discussions with our prime brokers and . . . are working to protect our investors while meeting the obligations of our creditors,'' Nicholas Maounis, Amaranth's founder, said in a letter to investors.
Natural gas prices have fallen more than 40 per cent since early August on strong storage levels and predictions of a mild winter.
One senior prime brokerage executive said the fact that Amaranth's main funds are now down 35 per cent meant they had lost over 50 per cent in the past few weeks.
A fund of hedge funds manager, said: "We are not very bullish for oil and gas. Where there is smoke there is fire, and they are probably not the only ones."
He added that Amaranth's funds were up about 20 per cent for the year as recently as mid-August, and that the firm's losses over the past few weeks could be as high as $4bn. Amaranth was founded in 2000 and bills itself as a multi-strategy fund specialising in energy trading, merger arbitrage, convertible bond and long-short strategies.
The fund is among the biggest players in the energy market and trades heavily with the commodities desks of large Wall Street firms. It receives prime brokerage services from Morgan Stanley, among others.
The fund made large losing bets on the difference in price between contracts for natural gas delivery in the summer and winter. Instead of widening, as Amaranth predicted, spreads have narrowed. Volatile gas prices last month led to the closure of $400m hedge fund MotherRock, run by Bo Collins, former New York Mercantile Exchange president.
In its letter to investors, Amaranth said it was "aggressively reducing" its natural gas positions and has so far met every margin call. Amaranth employs about 21 energy traders. In Greek myth its name refers to an immortal flower.
Traders said Amaranth could cause some volatility by moving quickly to liquidate holdings to meet margin calls and possible investor redemptions. Yesterday, Amaranth urged Canadian DVD and CD manufacturer Cinram to go private or consider a sale to increase shareholder value. Amaranth owns about 15 percent of Cinram.
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