Amaranth Advisors LLC, a hedge-fund manager with about $9.5 billion in assets, told investors its two main funds fell an estimated 50 percent this month because of a plunge in natural-gas prices.
``We are in discussions with our prime brokers and other counterparties and are working to protect our investors while meeting the obligations of our creditors," Nick Maounis, the 43-year-old founder of the Greenwich, Conn. -based firm, said in a letter to investors obtained by Bloomberg News. The funds, which had gained 26 percent through August, are down at least 35 percent for the year, or about $4.6 billion.
Amaranth made so-called spread trades that try to profit from price discrepancies among futures contracts.
``The speed with which leveraged funds can evaporate is mind boggling," said Mark Williams, a professor of finance and economics at Boston University specializing in energy markets.
Investors said the funds, Amaranth International and Amaranth Partners, wagered that the difference between futures prices for natural gas in the summer and winter months would continue to get larger, a trend that's held since at least the beginning of 2004. Futures are contracts to buy or sell a commodity on a specific date at a preset price.
Instead, the spread collapsed. The difference in price between the 2007 March and April contracts for natural gas peaked in July at $2.60. That shrunk to $1.15 by the end of last week. The spread between the two was about 75 cents today on the New York Mercantile Exchange.