Amaranth losses swell

Date: Thursday, September 21, 2006
Author: Paul Waldie, Associated Press

Amaranth Advisors LLC has increased the estimate of its losses to about $6-billion (U.S.) since the start of the month, the hedge fund said late Wednesday, making it one of the largest hedge-fund losses in history.

The losses come amid speculation Citigroup Inc. is in talks to buy a stake in Amaranth, Dow Jones reported Thursday, citing people familiar with the matter. Citigroup said it wouldn't comment on the story.

The Greenwich, Conn.-based company, which placed the wrong bets on the direction of natural-gas prices, believes the value of its funds have dropped 65 per cent so far this month, putting its year-to-date losses at 55 per cent, Amaranth said in a note to investors late yesterday. That pegs its losses this week alone at $1.4-billion, according to Bloomberg.

Estimates for the size of Amaranth's losses had been previously seen at $4.6-billion. If the revised estimate is correct, the losses would surpass those of Long-Term Capital Management LP in 1998, which saw $5.75-billion evaporate on an inflation-adjusted basis.

The company plans a conference call on Friday.

“Amaranth is determined to earn back its investors' trust, and one step towards that end is to share as much information as we reasonably can,” said the company's chief executive Nick Maounis in the note.

Amaranth won't likely be the last hedge fund caught on the wrong side of an energy bet. More than $20-billion has flowed into energy and commodity funds this year, according to Bloomberg data. Much of that is new speculative money. Peter Fusaro, co-founder of New York-based Energy Hedge Fund Center, said he now tracks 585 energy hedge funds, a number that's more than tripled in the past two years.

Excacerbating the situation is natural gas prices which continue to fall, shedding more than 2 per cent to a two-year low Thursday.

Mr. Maounis implied that his company wants to continue doing business. “We are now focused on communicating with our investors and defining the future of our business,” he said.

The month-to-date losses mean Amaranth's assets have fallen from about $9-billion at the beginning of the month to just over $3 billion.

Yesterday, Amaranth said it had transferred its energy portfolio to a third party. There were reports that Citadel Investment Group LLC and JPMorgan Chase & Co. have taken over some of Amaranth's energy trades.

Amaranth said it's “eliminated the prospect” of further big losses and continues to meet all margin calls.

“Our major financial counterparties have confirmed that they are now comfortable with our portfolio and overall liquidity position,” Mr. Maounis said.

It's uncertain how many Canadian institutional investors have exposure to Amaranth. Caisse de dépôt et placement du Québec, for one, had $77.3-million invested in the hedge fund as of Dec. 31, according to the pension fund's annual report. A spokesman for the pension fund yesterday declined to say whether it still held the investment.

Canada Pension Plan said yesterday it doesn't have any holdings in the company.

Citigroup is reportedly in talks to buy a stake in the hedge fund. The talks with Amaranth have involved Dean Barr, the head of the hedge fund group in Citigroup's alternative investments division, Dow Jones said, citing an unnamed source.

With files from reporter Paul Waldie and the Associated Press.