Amaranth Advisors LLC, the hedge fund manager which lost billions of dollars in energy trades, will suspend redemptions and liquidate its remaining positions, the company said in a letter made available to Reuters on Friday.
Amaranth will continue to pursue strategic alliances, the letter said, after its net asset value declined by 65 percent to 70 percent during September. Its funds are down 55 percent to 60 percent year-to-date, it estimated.
Amaranth said it was in investors' best interests to temporarily suspend redemptions for September 30 and October 31.
This temporary suspension of redemptions will enable the Amaranth funds to generate liquidity for investors in an orderly fashion, with the goal of maximizing the proceeds of asset dispositions, while seeking to treat all investors equitably through pro rata distributions, the letter by founder Nicholas Maounis said.
The Greenwich, Connecticut-based firm, a multi-strategy fund manager that in August reported assets of more than $9 billion, met with investors earlier this week to discuss future plans.
Amaranth suffered a $6 billion loss this month in wrong-way bets on natural gas derivatives, including $560 million in one day alone, which led to demands by investors for a return of capital.
The letter is the latest evidence of the unraveling of Amaranth, a once prominent hedge fund manager whose trading prowess generated more than $3 billion in profit from January 2005 to August 2006, largely on commodity trades.
Those gains should have been a warning sign to investors, said Magnus Olssen, portfolio manager at London & Capital Group, a fund-of-funds based in the United Kingdom.
You know it is extremely difficult to produce solid numbers without taking stupid risks, Olssen said. It shows you how dangerous it is to be too return-hungry.
Amaranth founder Maounis said on a September 22 conference call that he intended to stay in business and reverse the firm's fortunes.
As Amaranth struggled to stay afloat, it sold its remaining energy portfolio at a loss to Citadel Investment Group and J.P. Morgan Chase & Co. (NYSE:JPM - news) and pursued talks with Citigroup (NYSE:C - news) to give it a strong financial backer.
But on Friday, Citigroup all but walked away from the talks, people familiar with the firm said, leaving the firm with fewer options.
Under the firm's offering documents, Amaranth - like many hedge funds - has broad discretion to bar redemptions, or investor capital returns, under dire circumstances, such as when a large number of investors demand capital back.
However, industry analysts said Amaranth is faced with a host of other issues, including the prospect of a mountain of legal action and a wholesale departure of trading talent, that appear to be threatening its viability as a business.
Already several prominent hedge fund attorneys, said they are considering legal action on behalf of aggrieved investors.
Scott Berman, an attorney with Kaplan, Friedman, Seiler & Adelman who represents investors in hedge funds, said his clients are considering taking legal action against Amaranth for possible misrepresentation of performance or strategies, or for other violations of securities laws.
There has to be some unpeeling of the onion, Berman said. Sometimes there is nothing that meets the eye, sometimes it is rotten to the core.