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Amaranth Low On Gas And Out Of Luck

Amaranth Advisors' bet big on natural gas and has lost big time.

Amaranth Advisors' bet big on natural gas and has lost big time. The Greenwich, Conn.-based hedge fund manager has told investors to brace themselves for a 35% drop in fund value, which could amount to a loss of $4 billion. "We are in discussion with our prime brokers and...are working to protect our investors while meeting the obligation of our creditors," firm founder Nicholas Maounis wrote in a letter to investors. That 35% tumble, according to one non-firm executive in a Financial Times interview, means that firm's main funds have lost about 50% of their value since mid-August, when they were up 20% for the year. Amaranth isn't the only one smarting from what in hindsight may be seen as not the smartest investment. Hedge funds that invest in Amaranth reportedly have also suffered, including the Goldman Sachs Dynamic Opportunities Fund, which put 5% of all its investments in Amaranth and said it may see losses this month of 2% to 3%. Morgan Stanley, Credit Suisse and Deutsche Bank likewise are said to have money in Amaranth but have not commented on the decline in natural gas. "Natural gas is the most volatile of anything that trades in the future markets," one HF founder told The Wall Street Journal. To produce those kinds of losses means borrowing an estimated $8 for ever $1 it invested, he said. The WSJ says Amaranth may not have to worry about a run to redeem by nervous investors as it has the right to impose withdrawal limits. But the fallout from the funds' failure, say market observers, could have a negative impact on investor's future hedge fund allocations. It's not as if no one would have seen this coming; Amaranth's announced troubles follow only weeks after another energy-focused hedge fund, MotherRock, announced it was closing because of similar losses.

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