Amaranthus Extermino

Bill and Rachel Ziemba examine what can be learnt from the 2006 Amaranth Advisors Hedge Fund Disaster

On September 19, 2006 the hedge fund Amaranth Advisors of Greenwich, Connecticut announced that it had lost $6 billion, about two thirds of the $9.25 billion fund in less than two weeks, largely because it was overexposed in the natural gas market. The case of Amaranth provides a key example to understand how a series of trades can undermine the strategy of such a hedge fund and the assets of investors.

The Greenwich, Connecticut fund was founded in 2000, employed hundreds in a large investment space with other offices in Toronto, London and Singapore. In this column we analyze how Amaranth became so overexposed, whether risk control strategies could have prevented the liquidation and how these trends reflect the current state of the financial industry.

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