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September 21, 2006

Amaranth Update: Lost $6.5 Billion - Not $2 Billion

posted by MR WAVETHEORY at 9/21/2006 01:10:00 AM
Bloomberg now says Amaranth Advisors lost $6.5 billion in one week. It looks like my previous post underestimated the losses which until yesterday was estimated at $2 billion. This is turning into a very amazing story and will certainly deserve a mention in the Guinesss Book of World Records for most amount of money lost by a hedge fund. It certainly beats Long Term Capital.
Amaranth's main funds fell 65 percent, or more than $6 billion, this month through Sept. 19, founder Nicholas Maounis said in a letter to investors late yesterday. That leaves Greenwich, Connecticut-based Amaranth with less than $3.5 billion in assets.
Amaranth has few friends but they do have them. JP Morgan and Citadel are assuming Amaranth's positions. JP Morgan may be bailing it out more out of enlightened self interest. The rest of Amaranth will probably become a part of Citigroup.
Yesterday, Amaranth was pursuing the cash infusion it may need to stay in business. New York-based Citigroup was in negotiations that may give it control of Amaranth, according to the people familiar with the discussions. Should a
deal be reached, Amaranth would become part of the Citigroup division that oversees $42 billion in hedge-fund, private- equity and real estate assets, said the people, who asked not to be identified because the talks may still break down.

Amaranth's blowup will certainly cause investors to rethink hedge funds as an asset class and perhaps even consider investing more money into venture capital funds. As much as people hated the tech bubble, at least you didn't have billion dollar blowups at a single fund. It looks like this one blowup could be as much as the venture capital firms lost back in 2000. The losses are much smaller and the speed is also more prolonged. At least in venture capital, you don't have one fund blowing more than $1 billion - in a single week.

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