A gathering storm?
by Ron Orol
2 October 2006
Copyright 2006, The Deal, LLC. All Rights Reserved
So far, embattled Amaranth Advisors LLC's mammoth trading mistakes leading to massive losses have not had much of an
impact on global markets. The Greenwich, Conn.-based hedge fund, with $9.2 billion in assets under management, collapsed
after making a huge bet that an upward trend in natural gas prices would continue. Amaranth estimates that its year-to-date
loss may be in excess of two-thirds of its assets, or $6 billion. Meanwhile, the Securities and Exchange Commission has begun
its own investigation of the hedge fund, sources close to the agency say.
Amaranth's problems did not transmit to the greater markets because its failures were isolated to energy trading and the
energy market. But other problems may be on the horizon. Experts worry about a sequence of crises or collapses, creating
systemic and far-reaching problems. "If a lot of hedge funds cave in at the same time, there could be serious ramifications,"
says Vikas Agarwal, assistant professor of finance at Georgia State University's J. Mack Robinson College of Business.
The prospect of lurking crises seems to have moved regulators and legislators in Washington to start focusing on hedge funds,
but whether they do anything meaningful is another matter. The most concrete step so far? A study. On Sept. 27, the House
approved a bill by Rep. Michael Castle, R-Del., requiring the President's Working Group on Financial Markets to conduct a six-
month study into the hedge fund industry and to make recommendations about their regulation. Sen. Chuck Hagel, R-Neb., is
expected to introduce a similar bill in the Senate.
"The problems at Amaranth have definitely prodded this legislation forward," says Elizabeth Wenk, Castle's deputy chief of
staff. "Amaranth shows how little information we have about hedge funds and how massive they are and their need to be
The study would look at a wi