{{short description|American multi-strategy hedge fund}} {{Infobox company | name = Amaranth Advisors | logo = AmaranthAdvisorsLogo.svg | logo_size = 220px | logo_alt = Amaranth Advisors composed of the Greek symbol for Alpha and the word Amaranth in a serif font | type = [[Privately held company|Private]] | industry = [[Hedge funds]] | fate = Bankrupted | founded = {{Start date|2000}} in [[Greenwich, Connecticut|Greenwich]], CT, United States | founder = Nicholas Maounis<ref name="MarketWatch2006September25BarrAlistair" /> | defunct = {{end date|2007|09}} | num_locations = Houston, London, Singapore, Toronto, Greenwich<ref name="NewYorkTimes2006September19MorgensonGretchen" /> | num_locations_year = 2006 | key_people = {{plainlist|style=text-indent:-1em; margin-left:1em;| * • Robert Jones (Chief Risk Officer)<ref name="NewYorkTimes2002April7">{{cite news|title=WEDDINGS; Stella Simakova, Robert Jones|url=https://www.nytimes.com/2002/04/07/style/weddings-stella-simakova-robert-jones.html|accessdate=8 January 2020|agency=The New York Times Company|page=12|work=New York Times|date=7 April 2002|location=United States|language=English|url-access=limited}}</ref> * • Charles H. Winkler (COO)<ref name="NewYorkTimes2006September19MorgensonGretchen">{{cite news|last1=Morgenson|first1=Gretchen|last2=Anderson|first2=Jenny|title=A Hedge Fund's Loss Rattles Nerves|url=https://www.nytimes.com/2006/09/19/business/19hedge.html|accessdate=8 January 2020|agency=The New York Times Company|issue=Business Day|page=C1|work=New York Times|date=19 September 2006|location=New York, N.Y., United States|language=English|url-access=limited}}</ref>}} | aum = [[US$]]9.2 billion (at its peak Aug 2006)<ref name="MarketWatch2006September25BarrAlistair">{{cite news|last1=Barr|first1=Alistair|title=Amaranth energy trades leveraged five times in May|url=https://www.marketwatch.com/story/amaranths-energy-portfolio-was-leveraged-five-times-in-may|accessdate=6 January 2020|agency=Dow Jones & Company Inc|publisher=MarketWatch|date=25 September 2006|location=San Francisco, United States|language=English}}</ref> | num_employees = | num_employees_year = }}
'''Amaranth Advisors LLC''' was an American multi-strategy [[hedge fund]] founded by Nicholas M. Maounis and headquartered in [[Greenwich, Connecticut]].<ref name="MarketWatch2006September25BarrAlistair" /> At its peak, the firm had $9.2 billion in [[assets under management]]<!-- (unfortunately, their own management)--> before collapsing in September 2006, after losing in excess of $6 billion on [[natural gas]] [[futures contract|futures]].<ref name="MarketWatch2006September25BarrAlistair" /> Amaranth Advisors collapse is one of the biggest hedge fund collapses in history and at the time (2006) [[List of trading losses|largest known trading losses]].<ref name="WSJ2016January1CopelandRob">{{cite news|last1=Copeland|first1=Rob|title=Ten Years After Blowup, Amaranth Investors Waiting to Get Money Back|journal=The Wall Street Journal. Eastern Edition|url=https://www.wsj.com/articles/ten-years-after-blowup-amaranth-investors-still-waiting-for-money-back-1451524482|accessdate=6 January 2020|agency=Dow Jones & Company Inc|issue=Hedge Funds|publisher=Wall Street Journal|date=1 January 2016|location=United States|language=English|url-access=subscription|issn=0099-9660}}</ref>
==History==
=== 2000 founding === The company was founded in 2000 by Nicholas M. Maounis and based in [[Greenwich, Connecticut]]. Throughout much of its history, [[convertible arbitrage]] was the firm's primary profit vehicle. Maounis had prior to founding Amaranth Advisors worked at [[Paloma Partners]] as a [[portfolio manager]] covering debt securities.<ref name="NewYorkTimes2006September19MorgensonGretchen" /> The company was named after the [[amaranth]]<ref name=Taleb2007>{{cite book |author=Nassim Nicholas Taleb |year=2007 |title=The Black Swan: The Impact of the Highly Improbable |publisher=Random House}}</ref> an "immortal" flower that retains vivid color even after death.
===2004–2005 Focus on energy trading=== During 2004-2005, the firm shifted its emphasis to [[energy trading]], led by the success of Canadian trader [[Brian Hunter (trader)|Brian Hunter]] who invested in the natural gas market. In 2005 the firm made an estimated $1 billion<ref name="NewYorkTimes2006September19MorgensonGretchen" /> on rising energy prices after [[Hurricane Katrina]] curtailed production.
Natural gas trading gradually came to dominate Amaranth Advisors, which previously had been more diversified in strategy and investments. The financial success of Hunter's trades attracted increasing attention from investors, leading to massive inflows of cash. Hunter's prominence in the firm also raised calls for caution from both inside and outside Amaranth by those who worried being concentrated in a single volatile commodity introduced major risks.<ref name=Dreyfus_2013>Barbara T. Dreyfus (2013). Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster. NY: Random House, ISBN 9781400068395</ref>
=== 2006 Energy trading losses ===
====2005 Dec – natural gas price decline==== Amaranth Advisors' troubles began in December 2005 as natural gas prices began to decline and Amaranth Advisors portfolio was structured for the price to move in the spring months of March or April.<ref name="NewYorkTimes2006September19MorgensonGretchen" />
Hunter, who was 32<ref name="WSJ2016January1CopelandRob" /> years old at the time, invested heavily in natural gas futures which resulted in a single week loss of $6.5 billion when prices failed to move as expected.<ref name="NewYorkTimes2006September29AndersonJenny">{{cite news|last1=Anderson|first1=Jenny|title=Betting on the Weather and Taking an Ice-Cold Bath|url=https://www.nytimes.com/2006/09/29/business/29insider.html|accessdate=23 April 2010|agency=The New York Times Company|issue=Insider|page=C8|work=New York Times|date=29 September 2006|location=New York, N.Y., United States|language=English|url-access=limited}}</ref>
====Sept 18th 2006 – client told of losses==== On Monday September 18, 2006 Amaranth Advisors told investors that natural gas market downturn had resulted in $3 billion of losses.<ref name="NewYorkTimes2006September19MorgensonGretchen" /> Further, Amaranth Advisors told investors that it was working with lenders for maintaining liquidity while also and now selling portfolio holdings "to protect our investors".<ref name="NewYorkTimes2006September19MorgensonGretchen" /> Traders sold securities that could be liquidated without undermining and disrupting the energy market; these included convertible bonds and high-yield corporate debt.<ref name="NewYorkTimes2006September19MorgensonGretchen" />
====Transferring energy portfolio==== 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]].
====October 1, 2006 Fund suspends trading==== 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.
In September 2006 Amaranth Advisors investors were informed that they could not pull their money out and that redemptions would be temporarily suspended for two months.<ref name="WSJ2016January1CopelandRob" /> Ten years later, 90% of assets had been returned and 10% of investor assets were still frozen through December 2016.<ref name="WSJ2016January1CopelandRob" />
=== Aftermath === After the collapse of Amaranth, Maounis founded a new hedge fund named [[Verition Fund Management]]. Several ex-Amaranth employees were hired to work at the new fund.<ref>{{Cite news |last=Strasburg |first=Jenny |date=2010-06-25 |title=Former Amaranth Chief Returns to the Stage |language=en-US |work=Wall Street Journal |url=https://www.wsj.com/articles/SB10001424052748704569204575329162382399380 |access-date=2023-06-24 |issn=0099-9660}}</ref>
==Clients== Amaranth Advisors' investors included [[pension funds]], [[financial endowment|endowments]], banks and brokerage firms including Institutional Fund of Hedge Funds at [[Morgan Stanley]].<ref name="NewYorkTimes2006September19MorgensonGretchen" /> Pension fund clients included San Diego County Employees Retirement Association.<ref name="NewYorkTimes2007March30">{{cite news|title=San Diego Pension Fund Sues Amaranth (Mar 20, 2007)|url=https://dealbook.nytimes.com/2007/03/30/san-diego-pension-fund-sues-amaranth/|accessdate=8 January 2020|agency=The New York Times Company|issue=DealBook|work=New York Times|date=30 March 2007|location=New York, N.Y., United States|language=English|url-access=limited}}</ref>
==Investigations== ===2007 CFTC investigation=== On July 25, 2007, the [[Commodity Futures Trading Commission]] (CFTC) charged Amaranth and Hunter with attempting to manipulate the price of natural gas futures.<ref>{{cite news | title = U.S. Commodity Futures Trading Commission Charges Hedge Fund Amaranth and its Former Head Energy Trader, Brian Hunter, with Attempted Manipulation of the Price of Natural Gas Futures |url = http://www.cftc.gov/PressRoom/PressReleases/pr5359-07 |publisher = CFTC |date=2007-07-25 }}</ref> Additionally, the [[Federal Energy Regulatory Commission]] charged Amaranth, Hunter and trader Matthew Donohoe with [[market manipulation]].<ref>{{cite news|title=Commission Takes Preliminary Action in Two Major Market Manipulation Cases |url=http://www.ferc.gov/news/news-releases/2007/2007-3/07-26-07.pdf |publisher=Federal Energy Regulatory Commission |date=2007-07-26 |url-status=dead |archiveurl=https://web.archive.org/web/20080910044759/http://www.ferc.gov/news/news-releases/2007/2007-3/07-26-07.pdf |archivedate=2008-09-10 }}</ref> The CFTC and the FERC had conflicting versions of what Hunter did, and are currently competing over [[jurisdiction]].<ref>[https://web.archive.org/web/20080711181035/http://money.cnn.com/2008/07/07/news/companies/The_man_who_lost_6B_mclean.fortune/index.htm The Man Who Lost $6B]</ref> In 2014 Hunter settled with the CFTC, paying a $750,000 fine and accepting a ban from trading all CFTC-regulated natural-gas products.<ref name="WSJ2016January1CopelandRob" />
===2010 Federal Energy Regulatory Commission=== 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.<ref>{{cite web|url=http://www.opalesque.com/fullarticle/56890/amaranth/Legal_FERC_rules_that378.html|title=FERC Rules that Amaranth's Brian Hunter Practiced Manipulation |date=26 January 2010|author=Opalesque}}</ref>
==Legal== In November 2007 Amaranth Advisors filed a lawsuit against [[JPMorgan]] claiming $1 billion in damages on the grounds that the bank interfered in the company's efforts to avoid collapse after natural-gas trades losses in 2006.<ref name="MarketWatch2007November14BrayChad">{{cite news|last1=Bray|first1=Chad|title=Amaranth sues JPMorgan; says it derailed efforts to save fund|url=https://www.marketwatch.com/story/amaranth-sues-jpmorgan-says-it-derailed-efforts-to-save-fund|accessdate=6 January 2020|agency=Dow Jones & Company Inc|publisher=MarketWatch|date=14 November 2007|location=United States|language=English}}</ref> The suit claimed that JP Morgan, as Amaranth Advisors's clearing broker, used their position to prevent Amaranth Advisors from derisking their exposure from its natural-gas derivatives portfolio by preventing the portfolio from being sold to first [[Goldman Sachs]] and later [[Citadel LLC]].<ref name="MarketWatch2007November14BrayChad" />
In December 2012, the [[New York State Court of Appeals]] upheld an earlier dismissal of the case. During the collapse of Amaranth Advisors, Centaurus was credited as being one of the major players on the other side of their position.{{Citation needed|date=June 2011}}
==Criticism== During the week of September 11, 2006, one week before clients were notified of losses, Amaranth Advisors was seeking new investors and marketing their fund as being up 25 percent for the year.<ref name="NewYorkTimes2006September19MorgensonGretchen" />
''The New York Times'' reported that Amaranth Advisors said it was a multi-strategy fund though it acted "like an energy and commodities fund. When it bet big on natural gas and lost, it was apparent that it was neither multistrategy nor particularly well hedged"<ref name="NewYorkTimes2006September29AndersonJenny" /> and also that in Amaranth Advisors' case {{"'}}multistrategy' seems to have been a misnomer at the fund."<ref name="NewYorkTimes2006September19MorgensonGretchen" />
[[Nassim Nicholas Taleb]] proposed the company's use of "twelve [[risk manager]]s" was meaningless, as the risk models failed to anticipate or ameliorate the problems that ended Amaranth Advisors.<ref name=Taleb2007/>
==References== {{reflist}}
==Further reading== *[https://web.archive.org/web/20070726050107/http://hsgac.senate.gov/_files/062507Report.pdf "Excessive Speculation in the Natural Gas Market"], United States Senate Permanent Subcommittee on Investigations, June 25, 2007
{{Hedge funds}}
[[Category:Financial services companies established in 2000]] [[Category:Financial services companies disestablished in 2007]] [[Category:Defunct financial services companies of the United States]] [[Category:Hedge fund firms of the United States]] [[Category:Defunct hedge funds]] [[Category:Companies based in Greenwich, Connecticut]] [[Category:Defunct companies based in Connecticut]]