Hector: Created page with "== Firms Involved == * Amaranth Advisors == Year of the event == 2006 == Description of the case == Amaranth Advisors was a multi-strategy hedge fund founded in 2000 by Nick..."

2017-06-24T20:16:35Z

Created page with "== Firms Involved == * Amaranth Advisors == Year of the event == 2006 == Description of the case == Amaranth Advisors was a multi-strategy hedge fund founded in 2000 by Nick..."

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== Firms Involved ==
* Amaranth Advisors

== Year of the event ==
2006

== Description of the case ==
Amaranth Advisors was a multi-strategy hedge fund founded in 2000 by Nick Maounis. In 2006, 75% of its returns were generated by the Energy division headed by Brian Hunter. He was heavily betting on natural gas futures. At the end of August, the fund had had a great year, piling several double-digit Month-on-month returns and totaling over $9bn of assets. However, 18 days laters, Nick Maounis was sending a letter to the investors, explaining that the fund had seen its assets shrink by 50% due to losses on natural gas futures trading. The fund was overtaken by Citadel and JP Morgan Chase, and consequently liquidated by Fortress Investment Group. Hunter had implemented a "calendar spread strategy" engaging half of the fund's assets, whereby he was long on winter months and short on non-winter months <ref>[https://www.econcrises.org/2017/02/01/amaranth-advisors/ Econcrises.org, CFA Institute, ''Amaranth Advisors'']</ref>. He believed indeed that the supply did not precisely match the seasonality of the demand for natural gas. As the losses in September 2006 attest, his view did not materialize in a timely manner, and the heavy leverage he used coupled with the low liquidity of the market got the better of the fund<ref>[http://www.edhec-risk.com/edhec_publications/all_publications/RISKReview.2007-09-06.3327/attachments/EDHEC%20Working%20Paper%20The%20Amaranth%20Collapse.pdf Hilary Till, EDHEC Risk Institute, ''The Amaranth Collapse: What Happened and What Have We Learned Thus Far?'']</ref>.

== Take-aways ==
* ''"The markets can remain irrational longer than you can remain insolvent"'' (apocryphal, attributed to John M. Keynes).
* Risk Management must be taken seriously. In particular, risk attribution between the various trading streams must be carefully implemented and monitored.

== References ==
<references />

When price deviation never corrects - Revision history

Hector: Created page with "== Firms Involved == * Amaranth Advisors == Year of the event == 2006 == Description of the case == Amaranth Advisors was a multi-strategy hedge fund founded in 2000 by Nick..."