29 Sep 2022


Amaranth Advisors LLC - Financial Services Firm

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Academic level: College

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Amaranth Advisors LLC was found in September in 2000 and rose to be a multi-billion firm within six years of existence. The Amaranth hedge fund made huge profits through large pension funds with big companies who got attracted to their services. The founder Nicholas Maounis appointed a big-name trader Brian Hunter to head the energy section of the firm, and he helped the firm to raise its profits and overall assets. 

However, it was not long until the firm came to its knees. This was contributed by three cordial errors the company management made. (1) The company invested most of its money in the natural gas trading which was a risky venture since it had a volatile market, which was dynamic regarding the unpredictable weather change. For instance, there was a sufficient supply of the gas during summers which brought the prices down and low supply during winters which resulted in hiked prices. (2) In preparation for the low supply season, the company acquired loans to make a huge investment which they had hoped it would boost their profits come the low supply season, which never came. (3) The company had an investment plan called Future Contracts whereby the contributors would get dividends on the profits the company made. These made the company heavily indebted, as the gas prices remained low and continued to deteriorate as the summer season extended from January to September, contrary to the normal. 

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In the effort of recovery, Nicholas sold the energy portfolio to Citadel Investment Group, and JP Morgan Chase, which had gone down from $9.2 Billion, to $ 3.5 Billion and the assets were liquidated. 

Despite low prices, Amaranth could not change their natural gas position in May 2006 because, they were optimistic that the winter season would fall at any time and the price of the gas shoot up, giving them lucrative returns. 

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StudyBounty. (2023, September 16). Amaranth Advisors LLC - Financial Services Firm.


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