InvestorGeeks

The Spontaneous Combustion of a Hedge Fund: Amaranth

by Jason

The big news this week has been the failure of the hedge fund Amaranth. Reports are stating that, in just a few days, the fund’s value fell about 50% from a high of $9.5 Billion. The fund is down “just” 35% on the year, thanks to a nice 25% gain last month. Most of the funds early gains and eventual losses were from heavy bets on natural gas derivatives.

At this level, many expect the fund to break up. The quick liquidation of the Amaranth’s assets (and everyone else who is worried by it) is playing havoc on the markets. Here is some interesting coverage I’ve come across:

- Get caught up at Courant.com: Amaranth Takes Heavy Hit

- Trader Mike criticizes the funds risk management: Amaranth Advisors Hedge Fund Ruined by Ignoring ‘Risk of Ruin’

- Bill Cara shares an email from a friend about some other securities which may have been affected by Amaranth and then somehow gets to talking about the US Constintution: About Amaranth and the U.S. Constitution

UPDATE: Bill Cara has a spreadsheet of Amaranth’s holdings. Are you affected?

Readers with a bit more time on their hands may want to take a look at Jim Cramer’s Confessions of a Street Addict, which goes into detail about the fall of Long Term Capital Management in 1998 and the near demise of his own hedge fund. I read the book this summer. It’s a very honest account and will give you a different perspective on the world of institutional investing.