Hedge funds - Flare-up
Sep 21st 2006 | LONDON AND NEW YORK
From The Economist print edition

Banks scramble to assess their positions after a hedge fund makes bad bets on natural gas

CALGARY, Alberta and Greenwich, Connecticut might be expected to mix about as well as oil and (sparkling) water. Calgary, which has boomed in recent years on the back of oil money, in its soul remains a cow town. Greenwich, a leafy suburb of New York, is anything but. The only herding done there recently is by the hedge funds that call it home following the latest investment fad.

It was one of those fashions—the seductive commodities boom—that rocked Calgary, Greenwich and the wider financial world this week. A young, though by no means junior, energy trader in Calgary made some very big bets on natural-gas prices that went spectacularly wrong. They have cost his employer, a Greenwich-based hedge fund called Amaranth Advisors, $6 billion since August 30th. That is more than half of what not long before was $9 billion it had under management.

In a letter to investors on September 20th, Amaranth reportedly said its losses this month alone could reach 65% of its funds. Withdrawal by investors—not to mention a possible exodus by managers deprived of their bonuses—are likely to hurt it more. The fund could be wound up if a buyer is not found.

Full Article on Economist.com