How Amaranth's $6.6 Billion Collapse Began With Trader's Bid to Quit

Bloomberg have an article detailing the downfall of Amaranth, the biggest hedge fund implosion ever, losing $6.6 billion on bets in natural gas contracts.

The trader responsible, Brian Hunter who was 32 at the time of the collapse, 17 months earlier had been offered a $1 million bonus to join Steven Cohen's SAC Capital Advisors LLC but was persuaded to stay with a promotion, greater responsibility and an increased package. In 2005, Hunter earned about $75 million, or an agreed 15% of profits he made.

Notably, with returns in other instruments drying up, Hunter's gas contracts had become the saving bet of the firm for two years straight. And what was this complex strategy he was pursuing - Hunter was betting that the difference in prices of natural gas between winter months and summer months would widen.

Sometimes, management discipline and common sense get blinded by greed and desperation.

posted by John Wilson @ 10:53 PM Permanent Link newsvine reddit


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