The Associated Press
Friday, September 22, 2006; 7:32 PM
SAN DIEGO -- Amaranth Advisors LLC, which lost about $6 billion because of bad natural gas trades this month, said Friday it plans to stay in business but has sworn off energy trading.
Nicholas Maounis, founder of the troubled hedge fund, told investors that the firm is putting together a plan for investor redemptions and will disclose it soon.
"We have every intention of continuing in business and generating for our investors the same consistently high-risk adjusted returns which have been our hallmark, and we are fully committed to doing so," Maounis said in a conference call. "As a first step in the recovery process, we are eliminating energy trading from our strategy mix."
Amaranth said Thursday that its portfolio lost 65 percent in value after bad bets on natural gas prices and the subsequent sale of its energy portfolio.
The listen-only call lasted about 15 minutes.
"They were apologetic," said Brian White, chief executive officer of the San Diego County Employees Retirement Association, who listened in on the call. "They said they want to make money for their investors, and this was not the outcome they were looking for."
The association had invested $175 million in Amaranth last year.
David Myers, chairman of the San Diego County pension fund, was unimpressed.
"He did not, in my opinion, relay information that we didn't already know," Myers said. "There wasn't anything new."
San Diego County pension managers pressured Amaranth for the last several months about why it was so heavily invested in energy, White said. "We were asking those questions for a while, and we were told they were lowering their weights," he said.
San Diego County, which has about one-fifth of its $7.5 billion in assets invested in 11 different hedge funds, estimates it lost $85 million with Amaranth, White said. The county asked Amaranth on Monday to withdraw its remaining money.
Amaranth's implosion is one of the biggest hedge fund losses to date and comes as fund investment has poured into energy markets. Hot on the heels of the July failure of New York hedge fund MotherRock LP, which was forced to shut down due to bad natural gas bets, the Amaranth debacle has once again shone the spotlight on the issue of regulation of hedge fund trades. Still, it has caused barely a ripple in other financial markets.
The past week had been a painful one, Maounis said on the call, which was monitored by Dow Jones Newswires. He added that the fund's managers had also lost a lot of their own money.
"We feel bad about losing our own money, we feel much worse about losing your money," he said.
While Maounis didn't name the buyer of the energy portfolio, people familiar with the deal have said it was bought by JPMorgan Chase & Co. and Chicago-based hedge fund Citadel Investments.
Maounis said sale of the energy portfolio likely prevented investors from losing all their funds and that only one bid for the portfolio was received.
Amaranth's energy and commodities portfolio was responsible for a big chunk of the fund's previous success, booking a $1.26 billion profit in 2005 and $2.17 billion for this year to the end of August.
But the losses came swiftly to the portfolio. It began incurring large losses in natural gas in the week starting Sept. 11, and on Sept. 14, Amaranth lost roughly $560 million on its natural gas position as prices for the commodity plummeted to a two-year low.
"We continued to attempt to reduce our natural gas exposures while also selling other positions to raise cash in order to meet margin calls," Maounis said. But "as news of our losses began to sweep through the market our already limited access to market liquidity quickly dissipated."
Faced with big margin calls on natural gas positions and unable to borrow more to finance them, Amaranth sold its positions, Maounis said.
Had it not done so, creditors may have liquidated the fund's holdings in a move that "we believed would have resulted in substantial, if not total, losses to investors," he said.
The hedge fund had postponed three other calls it had scheduled this week with pension fund managers from San Diego County since it first disclosed its losses Monday.