amaranth hedge fund losses continue as payout susp

not everything in the garden is rosy. well, the amarath hedge certainly isn't. ouch !
40.

Amaranth Says It Plans Liquidation After More Hedge Fund Losses

By Katherine Burton and Jenny Strasburg

Sept. 30 (Bloomberg) -- Amaranth Advisors LLC suspended redemptions in order to sell off its remaining assets after losses at its two main hedge funds continued in the past week.

The funds are down as much as 70 percent for the month, the firm said in a letter to investors. Redemption requests scheduled for today and Oct. 31 won't be honored, preventing investors from withdrawing any money for at least another month.

``Our current intention is to dispose of the remaining positions in the funds' portfolios in an orderly fashion over time, seeking to maximize sale proceeds and to make periodic cash distributions to investors on a pro rata basis,'' founder Nicholas Maounis, 43, said in the letter late yesterday.

Amaranth is the Greenwich, Connecticut-based hedge fund manager that imploded almost two weeks ago after making wrong-way bets on the direction of natural-gas prices. The firm, which managed $9.5 billion of assets as recently as August, now has lost about $6.5 billion in the biggest hedge fund meltdown.

Shawn Pattison, a spokesman for Amaranth, declined to elaborate on the letter.

Amaranth initially pegged its September losses at about 50 percent. The decline accelerated to 65 percent as of Sept. 19, or about $6 billion, after Maounis sold off the firm's energy trades.

Maounis said his search for an investor has been unsuccessful and the firm is continuing talks. New York-based Citigroup Inc., the biggest U.S. bank, and Amaranth broke off discussions after more than a week.

Rockiest Month

Yesterday's notice of additional losses at Amaranth capped one of the rockiest months for the hedge fund industry.

More than two weeks ago, regulators in the U.S. and Malaysia began investigating Mount Kisco, New York-based Aeneas Capital Management LP after bad bets on Malaysian stocks caused losses of about 60 percent in one of its funds. Two days ago, Pirate Capital LLC, which oversees $1.7 billion, said half of its 10- member investment team quit.

Norwalk, Connecticut-based Pirate didn't give a reason for the departures, though former employees said they disagreed with founder Thomas Hudson over compensation.

Hedge funds are largely unregistered pools of capital that let managers participate substantially in gains on the money invested. There are more than 8,000 hedge funds with $1.2 trillion in assets, more than double the figure five years ago, according to Hedge Fund Research Inc. in Chicago.

Keeping Key Staff

Amaranth intends to reduce operating expenses ``to the extent that we are reasonably able to do so while also seeking to retain the key staff required to manage the process going forward,'' Maounis said in his letter yesterday.

The firm said it honored redemption requests for Aug. 31.

Some clients pushed Amaranth to release whatever money was left during discussions this past week, even if Maounis were successful in selling a stake to Citigroup or another party.

Other investors feared a fire sale of assets would leave even less money behind. By suspending redemptions, the firm is siding with those who want to get the most out of Amaranth's remaining investments.

``Our concern regarding potential liquidation would be that it be conducted in an orderly manner, recognizing the market impact it would have and maximizing the remaining value of the portfolio,'' said Brian White, chief executive officer of the $7.2 billion San Diego retirement fund.

White estimates his fund has lost about half of the $175 million it invested with Amaranth.

Bad Energy Bets

Maounis told investors on a conference call Sept. 22 that he had ``every intention'' of staying in business after selling the energy book to Citadel Investment Group LLC and JPMorgan Chase & Co.

Bets on energy investments such as natural-gas futures, contracts to buy or sell the commodity on a specific date at a preset price, accounted for about 56 percent of Amaranth's assets as of June 30. They provided $2.17 billion of the funds' profits this year through Aug. 31.

According to investors, Amaranth wagered that the difference between prices on gas futures for the summer and winter months would continue to get larger over time, a trend that had held since at least the beginning of 2004. Instead, the spread narrowed, forcing Amaranth to meet margin calls as the equity value of those bets evaporated.

The U.S. Securities and Exchange Commission is investigating Amaranth to determine whether it misled investors, brokers and lenders about its losses or its practices to guard against them.

To contact the reporters on this story: Katherine Burton in New York at [email protected] ; Jenny Strasburg in New York at [email protected]

Last Updated: September 30, 2006 00:01 EDT