Hedge funds feel the heat after Amaranth debacle

“Being greedy is the easiest way to lose money,” says Chris Walker in The Independent. It’s a principle that hedge fund group Amaranth Advisers should have taken on board.

"Being greedy is the easiest way to lose money," says Chris Walker in The Independent. It's a principle that hedge fund group Amaranth Advisers should have taken on board. Its star trader Brian Hunter made over $2 billion in the year to August on bets that natural gas future prices would rise. Amaranth allowed the Calgary-based trader to hike their natural gas holding from 7% of their exposure to half all the while still claiming to be a "multi-strategy" fund.

In less than two weeks Hunter's bets unravelled, losing Amaranth more than $6 billion, over 65% of the fund's assets. The group had borrowed money to amplify returns on its bets. In the natural gas portfolio alone, for every $1 of its own equity invested, it was borrowing $5. While borrowing in hedge funds is common, "I've never seen a hedge fund so highly leveraged in energy", Peter Fusaro of the Energy Hedge Fund Centre told The Economist.

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Jody Clarke

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.