In his book Hedgehogging, the veteran hedge fund manager Barton Biggs drew comfort from the fact that a bad trade often turns good at the moment the trader suffers most. “To be a valid signal, the blows have to be more than flesh wounds; they must draw blood. You must have stomach aches and wake up in the night sweating and worrying.” No doubt Brian Hunter, the 32-year-old Canadian trader who crippled hedge fund Amaranth Advisors, “must have endured a few such nights recently”, says the FT. But it’s too late for his disastrous bet on natural gas prices to come good. After $6.5bn in losses, Amaranth (from the Greek word “unfading”) has given up the ghost.
Wunderkind or ticking bomb?
The man at the centre of the storm “remains something of a mystery”, notes the Canadian Financial Post. Operating out of the booming energy frontier town of Calgary in Alberta, Hunter “managed to remain virtually unknown in the business community” until earlier this year, when details of his extraordinary $75m to $100m pay package were published in Trader Monthly. “He was a nice guy and everyone thought he was talented,” says one colleague. But he was completely “unassuming”; he lived in a modest suburban home on the outskirts of town, notable only because his grey F430 Ferrari was parked out front – “a splash of extravagance in a neighbourhood packed with mini-vans”.
Although unknown in public, Hunter had already created more than a buzz on Wall Street – “a wunderkind to some, a ticking bomb to others”, says Ann Davis in The Wall Street Journal. “Of all the traders gambling big sums on energy… Hunter made some of the brashest bets and the fastest money.” In 2006 he was up for the year by roughly $2bn in April; took a $1bn hit in May when gas futures suddenly collapsed; clawed it back over the summer, only to take the coup de grace in September. As one energy expert told The New York Times, he effectively lost his bet on the weather. “The only possible explanation is that Amaranth expected hurricanes to disrupt natural gas production and cause a temporary aberration in the price spread.” Highly leveraged and insufficiently hedged, the fund didn’t stand a chance. “You can’t model God.”
His previous career and future prospects
There was little in the lanky Calgarian’s personality to suggest a reckless gambler, says the Toronto Star. Renowned for his “technical skill”, Hunter seemed to have the most solid of groundings. Having been taught by Professor Robert Elliott, one of Canada’s foremost experts on market behaviour and risk management, he gained hands-on experience at TransCanada Corp before moving to New York to join Deutsche Bank.
At first things went well: Hunter notched up millions in profitable trades. But in early 2004, a series of bad bets led to him being locked out of the trading system and demoted to analyst. Hunter left soon after and subsequently sued over a withheld bonus, claiming Deutsche Bank defamed him. It denies the allegations.
There’s no doubt Amaranth founder Nick Maounis took a chance on Hunter, says the Financial Post. But when Hunter cleaned up on the double-whammy of Hurricanes Katrina and Rita, the hiring seemed more than justified. After last month’s collapse he has gone to ground: “from hero to zero in two years”. But many Calgary traders are willing to cut him slack. “He’s a bright guy who got this call wrong,” says one. “He won’t have much trouble getting another job.”