Learning from Amaranth

Does a massive hedge fund's collapse suggest something beyond the failure of risk controls at a single offering?

Christopher J. Traulsen 25 September, 2006 | 12:59PM
Facebook Twitter LinkedIn
The debacle at Amaranth Advisors is by now well known. The giant hedge fund, which had $9 billion in assets at the start of September, has lost roughly 65% since then according to various reports. The drop was caused by aggressive attempts by a 32-year old trader to profit from highly-leveraged bets on the direction of natural gas prices.

The loss—an enormous one by any standard—is a useful reminder for fund investors. First, it suggests once again that there is reason to be concerned about retail and institutional investors’ increasing fascination with hedge funds. Only a few days ago, the manager of BT’s pension scheme said it was doubling the fund’s stake in hedge funds and other alternative investments from 7% to about 15% of assets. Big pension funds in the US have also been

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Christopher J. Traulsen  is director of fund research, Europe and Asia, Morningstar.

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement