Here is a true story about what can happen to a "star" trader.


Senior member

Like LTCM and others before it, Amaranth seems to have committed the most basic trading error -- allowing its positions to become bigger than the available liquidity in the market.

Blue Flameout
How Giant Bets on Natural Gas
Sank Brash Hedge-Fund Trader

Up in Summer, Brian Hunter
Lost $5 Billion in a Week
As Market Turned on Him
A Low-Profile Life in Calgary
September 19, 2006; Page A1

CALGARY, Alberta -- Of all the traders gambling big sums on energy, a 32-year-old Canadian named Brian Hunter made some of the brashest bets and the fastest money.

Last week, he fell hard, proof of how quickly fortunes can reverse in gyrating commodities markets.

Here in this bustling new energy frontier, Mr. Hunter headed the energy desk for a Connecticut hedge fund called Amaranth Advisors. At the end of August, trading natural gas, he was up approximately $2 billion for the year. Then Mr. Hunter lost roughly $5 billion, in about a week.

His losses savaged returns for Amaranth, dragging its assets under management down to $4.5 billion from $9 billion at the start of September. In disclosing the losses to investors in a letter yesterday, the fund said it was "aggressively reducing" its natural-gas bets, though Mr. Hunter remains at the fund. (Even as Amaranth was losing, some gas traders were winning; see article.)

What hurt Mr. Hunter is what he had ridden to glory for the past year or so: volatility.

Though unknown in public, he had created a buzz on Wall Street -- a wunderkind to some, a ticking bomb to others. From a cramped trading desk here, he thrived on big price swings, reaping billions of dollars on price declines and surges alike. But late last week, he watched with growing alarm as gas prices took a steep dive, particularly in futures contracts for delivery of gas for this coming winter. His losses mounted in after-hours trading last weekend.

"The cycles that play out in the oil market can take several years, whereas in natural gas, cycles take several months," Mr. Hunter said in an interview late in July, when his returns were looking rosy. "Every time you think you know what these markets can do, something else happens."

At that time, Mr. Hunter had more than $3 billion of bets outstanding, investors familiar with the funds' holdings say. Soon thereafter, a heat wave caused gas prices to go haywire, then soar. Many traders took hits. One energy-trading firm, MotherRock L.P. in New York, imploded and decided to close shop. The lanky Mr. Hunter, however, came out hundreds of million of dollars ahead in August, Amaranth investors say, and continued taking positions some other traders had abandoned as too risky. He declined to be interviewed yesterday.

An increasing number of big commodity players are bypassing the geopolitics of oil for the most-volatile major commodity: natural gas. The blue-burning fuel heats 52% of U.S. homes and runs many power plants in peak air-conditioning season. It also is a raw material in industries from fertilizers to chemicals.

Unlike oil, gas can't readily be moved about the globe to fill local shortages or relieve local surpluses. Forecasts of freezing U.S. temperatures in winter or heat and hurricanes in summer can send prices jumping, while forecasts of mild weather can do the opposite. Last December, amid a cold snap, gas soared to a record $15.378 a million British thermal units on the New York Mercantile Exchange, or Nymex. This month, prices fell below $5 in the absence of major hurricanes and with forecasters talking about another warm winter. Yesterday, gas for October delivery settled at $4.942 a million BTUs on Nymex, off four cents.

Backed by borrowed money and a deep-pocketed fund, Mr. Hunter took on more exposure to certain futures contracts than do some big investment banks employing more than 100 energy traders, say several traders and ex-colleagues. He sometimes held open positions to buy or sell tens of billions of dollars of commodities.

He was up for the year roughly $2 billion by April, scoring a return of 11% to 13% that month alone, say investors in the Amaranth fund. Then he had a loss of nearly $1 billion in May when prices of gas for delivery far in the future suddenly collapsed, investors add. He won back the $1 billion over the summer, only to lose that and much more last week.

The whiplash trading in these markets could work to the detriment of energy consumers. Some consumer advocates, utilities and federal officials say speculation in the energy markets accentuates the volatility of this staple fuel and that the increased volatility, in itself, hurts consumers. Volatility makes it harder for utilities and municipalities to determine the best time to buy gas for their operations. Many utilities made gas purchases over the past year that proved to be poorly timed. They passed on those costs to electricity and heating customers, even as futures prices were dropping.

'A Typical Mistake'

While energy consumers have seen their bills rise, many traders' paychecks have soared. Mr. Hunter is estimated to have taken home $75 million to $100 million last year.

His swift reversal calls into question how well some hedge funds grasp the risk they are taking in the now-popular energy markets. Vince Kaminski, a risk-management expert who protested chancy trades while at Enron Corp. and until recently was at Citigroup Inc.'s commodities desk, said yesterday that it is dangerous to take giant positions in relatively shallow markets, which certain months are in gas futures. "This is a typical mistake of inexperienced and aggressive traders," he said. Mr. Hunter "appeared to have a position that the entire market knew about. The markets are very cruel." Citing a well-known epigram, Mr. Kaminski added, "'The market can stay irrational longer than you can stay solvent.'"

Nick Maounis, Amaranth's founder and chief executive, said in August that more than a dozen members of his risk-management team served as a check on his star gas trader. "What Brian is really, really good at is taking controlled and measured risk," Mr. Maounis said. Mr. Maounis declined to comment yesterday.

When Mr. Hunter began trading gas eight years ago, it was far less volatile, hovering under $2 a million BTUs. Mr. Hunter had grown up in farm country near Calgary, but his knowledge of gas was limited to summer work on a rig in northern Canada. He knew markets, though: Unable to afford skiing while in college, he poured himself into math at the University of Alberta. A graduate professor of his was a leader in the emerging field of financial modeling and derivatives.

Mr. Hunter joined TransCanada Corp., a Calgary pipeline company that was becoming a player in the growing business of trading energy, rather than simply transporting it. The company would help customers like gas producers lock in prices for some of the fuel it shipped for them.

Mr. Hunter, then 24, came armed with fresh theories about options pricing and impressed his bosses with his ability to spot price anomalies. They gave him increasing amounts of money to trade with after early successes. Among them: He convinced them that options in Canadian gas were underpriced as a pipeline from Canada to Chicago was set to open and create a greater market for it.

"He helped us prove that mathematically...and it paid off hugely," says Shondell Sabad, a former colleague there who now trades for a Calgary bank.

Traders like Mr. Hunter make complex wagers on gas at multiple points in the future, betting, say, that it will be cheap in the summer if there is a lot of supply, but expensive by a certain point in the winter. Mr. Hunter closely watches how weather affects prices and whether conditions will lead to more, or less, gas in a finite number of underground storage caverns. Roughly akin to counting cards in bridge, a trader keeps track of how much gas is injected into storage and how much might have been withdrawn for various uses.

Mr. Hunter moved to Wall Street to do the same work for more pay. He joined Deutsche Bank's energy desk and gained a name trading U.S. gas futures -- where his wide profit and loss swings provoked a stormy face-off with superiors.

Mr. Hunter personally generated $17 million in profit in 2001 and $52 million in 2002, according to a complaint he later brought in state court in New York. By 2002, he pulled down more than $1.6 million in salary and bonus and began supervising the gas desk in 2003.

In December 2003, just as his group was close to ending the year up $76 million, he claimed in the suit, things went awry. In a single week, they had losses of $51.2 million, he said in the suit. He blamed "an unprecedented and unforeseeable run-up in gas prices" along with "well-documented and widely known problems with" Deutsche Bank's electronic-trade-monitoring and risk-management software, which he said hurt traders' ability to extricate themselves from bad trades. Deutsche Bank denied its systems were to blame.

Mr. Hunter argued that even though the desk as a whole posted a loss, he personally made trades that netted the bank $40 million that year. He and his natural-gas colleagues got no bonus. By February 2004, relations had soured to the point that supervisors locked him out of the trading system and made him an analyst, moving him off the desk. Mr. Hunter left in April and subsequently sued over the withheld bonus and claimed Deutsche Bank defamed him. It denied the allegations. The suit is pending.

Mr. Maounis, the head of Amaranth, took a chance on Mr. Hunter. Amaranth was one of the first hedge funds to build an energy desk soon after the demise of Enron, under the leadership of former Enron energy trader Harry Arora. Messrs. Arora and Maounis hired Mr. Hunter and initially kept him on a tight leash. Mr. Maounis says the firm knew of Mr. Hunter's history at Deutsche Bank but did extensive checks and found "nothing that made us uncomfortable."

Mr. Arora was relatively conservative and sought to make diversified commodities investments. He brought Mr. Hunter along and the energy group posted steady annual returns of 20% to 40%.

Mr. Hunter wanted to make bigger bets in his main market, gas. He had an ability to keep calm with huge bets on the line and markets were going berserk. In July 2005, for instance, he was in Calgary at Stampede, a rodeo festival, when the gas market began moving erratically. Mr. Sabad, his former TransCanada colleague, says Mr. Hunter got on the phone a few times but didn't panic or trade from his hotel room. "He asks himself, 'Do I still like my position?' If he does, he adds more," Mr. Sabad says.

Around that time, Amaranth agreed Messrs. Hunter and Arora could separate their trading "books," each controlling his own trades. Then late last year, the double-whammy of Hurricanes Katrina and Rita made Mr. Hunter a hero at Amaranth and a minor legend on Wall Street, as he made $1 billion for Amaranth.

Mr. Hunter trolls for what he calls mispriced options -- that is, the chance to buy or sell something at a price that appears farfetched to the market but that Mr. Hunter sees as a distinct possibility. Leading up to the hurricanes, his bets included a complex portfolio of options based on the idea that gas could get extremely expensive in the early fall. An option to buy gas at, say, $12 cost very little in summer 2005 because gas was then trading at only $7 to $9. When it surged past $13 after hurricanes ravaged Gulf of Mexico production, such options, which he had been buying, jumped in value.

His success was a rebuke to his ex-colleagues at Deutsche Bank, where lawyers were wrangling with him over his request to take depositions from former superiors, even as he was banking big profits. It also was hard for Mr. Arora, still his boss but not the main rainmaker. Mr. Arora eventually left to start his own hedge fund.

It was vindication for Mr. Hunter. In its annual Christmas card, Amaranth referred to its energy-market winnings by quoting Benjamin Franklin: "Energy and persistence alter all things." It sent out toy gasoline pumps.

Amaranth agreed to let Mr. Hunter trade from his hometown of Calgary, where he began with the fund's blessings to build an even bigger portfolio. A world away from New York gridlock, he zoomed to work in his new gray Ferrari, or occasionally a Bentley, which he tells friends is better in snowy Calgary winters. Besides the cars and a house he is building, he keeps a low profile. Some of his pickup-basketball buddies don't even know what he does. Though he consented to several interviews for this article, he wouldn't allow a photo.

From his desk on a trading floor, Mr. Hunter monitored dozens of "instant messaging" tabs from brokers and pored over weather screens. Six traders were there on one day this summer, in a space crammed with boxes of KitKats and Hershey bars, microwave popcorn and bags of running clothes. The only fancy touch was a basketball signed by Michael Jordan encased in Lucite.

'A New Level of Liquidity'

Bruno Stanziale, a former Deutsche Bank colleague now at Société Générale, works with energy companies that need to hedge their production. In an interview in July, he contended Mr. Hunter was helping the market function better and gas producers to finance new exploration, such as by agreeing to buy the rights to gas for delivery in 2010. "He's opened a market up and provided a new level of liquidity to all players," Mr. Stanziale said.

Mr. Hunter saw that a surplus of gas this summer could lead to low prices, but he also made bets that would pay off if, say, a hurricane or cold winter sharply reduced supplies by the end of winter. He also was willing to buy gas in even farther-away years, as part of complex strategies.

Buying what is known as "winter" gas years into the future is a risky proposition because that market has many fewer traders than do contracts for months close at hand. Deals for those far-away months are often done in over-the-counter transactions that can be hard to exit. In May, his team's position fell nearly $1 billion when the prices of far-forward gas contracts took a steep dive -- much as they did last week. In this case, a number of gas producers suddenly sold more gas than Mr. Hunter expected.

By summer, Mr. Hunter appeared to be proving doubters wrong. Amaranth's overall fund gained around 6% in June, was roughly flat in July and rose 6% in August, according to investors.

Although Mr. Hunter had fared well, many traders say he was acquiring positions that were too large to get out of if the market turned -- including a bullish bet on winter gas. Amaranth won't detail its positions or his trading strategy, so it is unclear exactly what hurt Mr. Hunter so badly last week. In recent weeks, people familiar with the transactions say, Amaranth bought MotherRock's gas positions in an attempt to cancel some of its trades and reduce its market exposure.

Expectations of a warmer-than-average winter are rising. Last week, the National Oceanic and Atmospheric Administration said the El Niño weather phenomenon has formed in the Pacific Ocean. That typically means warmer winters in the U.S. and lessens the threat from hurricanes in the Gulf of Mexico. All this, and the recent fall in crude oil, helped to batter gas prices.

Amaranth has scrapped plans relayed only a month ago to investors to offer them a separate energy-only portfolio.

Congress, meanwhile, is jumping into the debate on whether hedge funds exacerbate volatility. The Commodity Futures Trading Commission argued in a 2005 report that hedge-fund trading didn't increase volatility and even improved the functioning of the markets by giving energy firms more trading partners. A recent report by the Senate Investigations Committee contended energy markets were badly underpoliced. It cited an explosion of trading on electronic-trading systems and over-the-counter platforms over which the CFTC has no authority -- and in which Mr. Hunter and other big traders are extremely active
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Senior member
Quenkish, care to enlighten us? or is this some shoot from the hip speculation?


Active member
congress reported in late july early august that this winter would be a nat gas shortage due to us and china demand,my guess is hunters ego was bigger than his discipline,youth and wealth,killer potion,got him ,his record says he will prove to be right but wont be there to reap rewards.Cant remember date but it was on CSPAN which no one watches,see if it plays out.its not how much you make today,its will you be around to fight another day,this job is not gambling its managing risk,one is a game the other is a job good post twalker...written like you might be a writer or journalist..thank you for posting this


Senior member
ammo, I did not write this article myself, a broker sent it to me yesterday mroning.


Established member{24ABECB2-B095-454D-A177-ED38FE75C059}&siteid=

Amaranth investors try to sell stakes at big discount
Anger at timing of loss disclosure; stakes offered at 60% discount
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Digg it
By Alistair Barr, MarketWatch
Last Update: 7:51 PM ET Sep 19, 2006

SAN FRANCISCO (MarketWatch) - Some investors are so eager to get out of their investment in Amaranth Advisors LLC that they're willing to sell their stakes in the massive hedge fund for less than half what they were worth at the end of August.
Others are angry about the timing of Amaranth's disclosure of its huge trading losses, according to two hedge fund investors who requested anonymity.
Amaranth could suffer year-to-date losses of 35% after natural gas trades went awry, founder Nicholas Maounis said in a letter to investors that was obtained by MarketWatch on Monday. See full story.
Amaranth investors are now offering to sell their stakes in the fund for between 35% and 45% of the estimated net asset value at the end of August, according to Hedgebay, which operates a secondary market for hedge fund holdings.
Potential buyers are interested in paying between 10% and 20% of the estimated net asset value, Hedgebay data show.
Hedgebay co-Founder Jared Herman said that no trades have taken place yet, but there are a lot of investors willing to sell and several parties ready to buy.
The big discounts are likely driven by concern that Amaranth's remaining assets are very illiquid and will take a long time to unwind, he explained.
Amaranth has some private-equity holdings, which are difficult to value and sell quickly, he noted, adding that the hedge fund is likely to sell its positions in an orderly way over time. A spokesman for Amaranth said early Tuesday that the hedge fund would have no comment beyond the investor letter it disclosed on Monday.
Hedgebay serves funds of hedge funds, banks, ultra-wealthy individuals and family offices that either want to boost their investments in a fund that won't accept new money or are trying to get out of a fund that has a long lock-up, preventing quick redemptions. See related story.
Most transactions take place at a premium to the net asset value of funds, because access to top hedge-fund talent is usually limited. But Amaranth's shock announcement has sparked a run for the exits among its investors.
Two hedge fund investors who didn't want to be identified said there's anger at the timing of Amaranth's announcement, which may have restricted some investors from putting in redemption requests for the third quarter.
On some classes of fund shares, Amaranth restricts investors to redeeming 30 days after the end of each quarter, the investors said.
In order to receive a quarterly redemption, investors have to request that in writing 45 days before redemptions are due.
For the third quarter, redemptions were due at the end of October. But to redeem then, investors would have had to request it 45 days earlier. That means redemption requests should have been in by the end of last week.
Information about Amaranth's losses first emerged publicly on Monday. An Amaranth spokesman declined to comment when asked late Tuesday about the firm's redemption policy and the timing of its disclosure.
Still, the investors also noted that Amaranth can suspend all redemptions in several other situations, including when investors representing more than 7.5% of the fund's assets ask to get out.
Most investors have already put in such requests, so Amaranth is likely to freeze all redemptions, they added.


Legendary member
GammaJammer said:
Downside is it's Sunday and I'm typing this from my desk. Oh well.
On the other hand GJ, if you were at home, doubtless your better half would have you toiling away at some unpleasant chore or you'd be like I was yesterday afternoon: freezing my gonads off fixing my Father-In-Law's fence!
Hope you get some time to yourself this weekend.


hahaha yeah Tim you right, I'm not married yet but the distractions at home aren't the best. I would be at my office like GJ too if my network there was actually running properly.


Experienced member
i read the other day ( ithink it was either ny post or wsj) that the young dude who bust amaranth has now started his own fund and has attracted quite a bit of start up money already!

wonders never cease!

i also saw a story on cnbc about nick leeson coming back to the city (which he of course denied so must be true)


Hi Charlie, yeah apparently he (Nick) is getting back into currencies but only wants to trade for himself, atleast that's what the article said.


Experienced member
yeah, I read the Leeson article too, it was in Trader Monthly I think. Just trading for his own account is what he said, if I recall right. If i find the article and the time, I'll scan it in and post it here.
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Experienced member
cheers arb that would be great. i have the feb/march uk edition but have only flicked through it - is it in there?

has leeson had enough of party poker then? if he did his beans there, i cant see him doing that well in fx - not when gamma jammer is around anyway :)


Active member
Lesson? FX?
I thought his experience was in Nikkei Futures
His crime was to trade outside the "limits" set by Barings and not disclose the trades
Silly old Barings were completely duped
This stortyseems to suggest Hunter traded with the knowledge of Amaranth
That is completely different and a lot more scary


Established member
a "star" trader has to understand the language of price pattern

this guy enhanced his portefolio by random and in time but started too late


Senior member
Former Amaranth Trader Hunter Starts Commodity Funds (Update1)

2007-03-23 05:47 (New York)

(Adds hedge-fund investments in third paragraph, background

on LTCM and Amaranth from ninth paragraph.)

By David Scanlan and Reg Curren

March 23 (Bloomberg) -- Brian Hunter, the Amaranth Advisors

LLC energy trader who caused the biggest hedge-fund collapse

ever, is raising money for new commodity funds, documents sent

to potential investors show.

Hunter set up Solengo Capital Advisors and hired former

Amaranth colleagues including Chief Operating Officer Shondell

Sabad and money manager Shane Lee. The firm, with offices in

Hunter's hometown of Calgary and in Greenwich, Connecticut, aims

``to become a multibillion-dollar commodity investment

vehicle,'' according to the documents.

Amaranth failed six months ago after Hunter's bet on

natural-gas prices triggered $6.6 billion in losses. Hedge funds

attracted a record $126.5 billion last year from investors

seeking higher returns than they might get from stocks and bonds.

``It's a shocker, given his recent track record,'' said

Shannon Burchett, who traded oil for JPMorgan Chase & Co. and

Citigroup Inc. in the 1990s and now runs Risk Limited Corp., an

energy consulting firm in Dallas. ``There's a strange phenomenon

that failed fund managers seem to be able to reincarnate

themselves and re-attract money.''

Hunter didn't return a phone call yesterday seeking comment.

Nor did Sabad, most recently head of crude oil trading at

Toronto-based TD Securities.

Oil, Gas Funds

Hedge funds are mostly private and unregulated pools of

capital where managers can buy or sell any assets, participating

substantially in the profits of the money invested. They oversaw

$1.43 trillion as of Dec. 31, according to Chicago-based Hedge

Fund Research Inc.

Solengo will offer funds tailored to specific markets such

as crude oil, natural gas and base metals, the documents show.

The hedge fund will charge investors 2 percent of assets and 20

percent of any investment gains.

``You'd think investors would know the history and have

considerable hesitation about putting large blocks of money

under the same management team,'' Burchett said in an interview


Some hedge-fund managers have revived their careers after

spectacular losses. John Meriwether, who founded Long-Term

Capital Management LP and oversaw the firm's collapse amid the

Russian debt default of 1998, came back with JWM Partners LLC

one year later.

LTCM Collapse

LTCM leveraged $2.3 billion of capital into holdings of

about $125 billion before its collapse, which roiled financial

markets and led to a bailout organized by the Federal Reserve.

Amaranth, by contrast, oversaw $9.5 billion of assets. The

firm, founded by Nicholas Maounis, employed 420 people before

its collapse in September. Gas prices fell 26 percent in August

and another 7 percent in September, saddling the Greenwich-based

firm with $4.6 billion in losses during one week alone.

Solengo's Shane Lee, along with Matthew Calhoun, another

former colleague of Hunter's at Amaranth, will manage a natural-

gas portfolio. Karl Koster will be head of system engineering,

or risk management, the documents show.

``We want to hire the best portfolio managers in every

market and let them do what they do best -- make money,'' the

fund managers said in the documents.

Solengo's Calgary office is on 17th Avenue, on the second

floor of a building being renovated, about 30 blocks southwest

of Calgary's downtown. Calgary is Canada's fifth-biggest city

and the base for its oil and gas industry.

The building, with red brick and metal siding, was home to

a Calgary radio station until 1999, before it was turned into

office space. About 10 people were sitting yesterday at desks

with computer screens and telephones in the middle of a room

with a concrete floor.

--With reporting by Katherine Burton in New York. Editors:

Pickering (shw/pas).

Story illustration: For Bloomberg's hedge-fund home page,

See {HFND <GO>}.

To contact the reporter on this story:

David Scanlan in New York at +1-212-617-8738 or

[email protected].
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