Trading & Options · Profile from Trading and Options Research Companion
Amaranth Advisors
The Greenwich, Connecticut multi-strategy hedge fund that Nicholas Maounis founded in 2000 with ~$600m and a convertible-arbitrage team. It let one natural-gas trader, Brian Hunter, build the largest positions in the US natural-gas futures market. At times Amaranth held 40% of all NYMEX open interest in the winter months and 75% in the November 2006 contract (Senate Permanent Subcommittee on Investigations (PSI), Jun 2007). When the winter–summer spreads collapsed in September 2006, a fund of ~$8bn (PSI) — ~$9.2bn at its August peak (Wikipedia; Shared facts B3) — lost more than $6bn in weeks. It sold its energy book to JPMorgan and Citadel on 20 Sep 2006 and liquidated. The PSI found its trading drove gas prices away from fundamentals. The CFTC and FERC charged it with attempted manipulation in Jul 2007; the firm settled for a $7.5m civil penalty in Aug 2009. For a trading book Amaranth is the reference case of concentration inside a "diversified" fund: one book held most of the risk, and the positions were too big for the market. Its story turns on sizing and execution. It is a single-event entity in this KB and carries six moves (blueprint rule 6).
At a glance
- Founded
- 2000, Greenwich, Connecticut, by Nicholas M. Maounis, spun out of Paloma Partners with a team of four portfolio managers, eight analysts, five traders and four quants; Paloma held a minority stake (PSI, citing JPMorgan due diligence and interviews)
- Founder
- Nicholas Maounis, CEO; previously a trader and team manager at Paloma Partners (PSI); later founded Verition Fund Management (Wikipedia)
- Headquarters
- Greenwich, Connecticut; offices in London, Toronto, Singapore, Calgary and Houston by 2006 (PSI)
- Ownership / structure
- Private hedge-fund manager (Amaranth Advisors L.L.C.; Amaranth Advisors (Calgary) ULC for the gas desk — CFTC 2009)
- Type
- Multi-strategy fund (convertible, merger and utilities arbitrage) that became, in practice, an energy fund
- Scale (dated)
- ~$600m at start (2000); ~$8bn AUM and >400 staff in 2006 (PSI); peak ~$9.2bn (Aug 2006) (Wikipedia; Shared facts B3)
- Signature record
- Net returns >29% (2001), 15% (2002), 21% (2003), just over 3% (2004) (PSI, citing JPMorgan); +21.21% for the domestic fund in 2005, ~98% of it from energy (PSI, Table 5 and JPMorgan)
- The blow-up
- ~$1bn energy loss in May 2006; ~$600m on 29 Aug 2006; more than $2bn on gas from late August to mid-September (PSI); total losses >$6bn (Wikipedia; Shared facts)
- Exchanges and clearing
- NYMEX (regulated futures) and ICE (exempt electronic market under the "Enron loophole"); JPMorgan Chase as clearing firm (PSI)
- Regulators
- CFTC (attempted manipulation, filed 25 Jul 2007; consent order 12 Aug 2009); FERC (charges 26 Jul 2007); Senate PSI report (25 Jun 2007)
6 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
2000
Founding as a Multi Strategy Arbitrage Fund
Founding or fund launch
2004
Pivot to Energy and Brian Hunter
Strategy pivot / hiring
2006
NYMEX Limits and the Shift to ICE
Market-structure bet / regulatory arbitrage (failure)
2006
September Collapse and Energy Book Sale
Loss, drawdown or blow-up response / restructuring and liquidation
2006
Winter Summer Spreads and the May Loss
Large trade or position / leverage and sizing decision (failure)
2007
Senate Report CFTC and FERC Cases
Regulatory, enforcement or legal action