Amaranth Promises Asset Statement Today

by Carla Johnson, Investors Offshore.com

04 October 2006

Troubled hedge fund Amaranth told investors that as of last Friday, the net asset value of its multi-strategy funds had declined approximately 65% to 70% month-to-date and approximately 55% to 60% year-to-date.

The letter confirmed that Amaranth had 'temporarily' suspended September and October redemptions. 'This temporary suspension of redemptions' said Amaranth, 'will enable the Amaranth funds to generate liquidity for investors in an orderly fashion, with the goal of maximizing the proceeds of asset dispositions, while seeking to treat all investors equitably through pro rata distributions.'

The fund said that it was pursuing takeover negotiations with other funds but that its general intention was to liquidate its holdings and distribute the proceeds to investors. Amaranth promised to provide an update 'as close to our normal timeframe (today) as possible'.

The announcement said that Amaranth Advisors had retained Fortress Investment Group to assist the Amaranth team in selling off assets. Some investors aren't waiting, however, and are reported to have sold out their holdings via Hedgebay, which specializes in broking hedge fund holdings, especially when they are subject to lock-ins, which is the case at Amaranth.

Trader Brian Hunter, who lost Amaranth its 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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