Investors in collapsing hedge fund Amaranth, which lost two thirds of its assets on natural gas derivatives, want what's left of their money back as soon as possible; but most of them are locked-in and it's up to the fund to decide when to pay them out.
Amaranth admits that it has received substantial redemption requests and promises to come up with a repayment plan very soon. Apparently Amaranth managers have told some clients in face-to-face meetings that it will either liquidate itself altogether or sell out to an institution.
Trader Brian Hunter, who lost the US$6bn in the energy futures market, is said to have left the company. At the end of August, when his house of cards was about to come tumbling down, it is reported that the company's assets were 500% leveraged.
The question on many investors' lips is: Can we sue? Nick Maounis, Amaranth’s founder and chief executive, told the Wall Street Journal in August that he had a risk-management team monitoring trades. “What Brian is really, really good at is taking controlled and measured risk,” Maounis said. OK then!
In history, there are very few cases of successful prosecutions against hedge funds, outwith actual fraud. Investor agreements give the funds great leeway in terms of investment strategy; and the flip-side of reward is, of course, risk. Still, there are questions lawyers will ask, focusing on the fiduciary obligations owed to investors. It is alleged that Amaranth executives were talking up the fund's prospects even as Brian Hunter's bets were turning sour.
Regulators may also have something to say. According to the New York Times, the SEC its investigating whether Amaranth misled investors. Other regulators with an interest include the Commodities and Futures Trading Commission and the New York Mercantile Exchange.
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