MSNBC – We at NEWSWEEK don’t print obituaries before our subject has been officially declared dead. But I’d like to make an exception for Amaranth, the hedge fund that became famous last week for losing $6 billion of its investors’ money almost overnight by betting wrong on natural-gas prices. Amaranth hasn’t formally passed on to hedge-fund heaven (or hell) and vowed last Friday to stay in business. But it’s so deep in the hole that I can’t imagine it surviving.<\/p>\n
Hedge funds pass away all the time. Hedge Fund Research of Chicago estimates that 326 went out of business in the first half of this year. But Amaranth isn’t just one of almost 9,000 hedge funds, it was favored by the likes of Goldman Sachs, Morgan Stanley and Lehman Brothers, which steered billions of dollars of clients’ money into it. Lehman\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u009dwhich, like Amaranth and the other players here, declined to talk to me\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u009dhas told its clients it got some of their money out. It’s not clear if any other advisers did.<\/p>\n
Amaranth doesn’t seem to be corrupt in the way Enron or WorldCom were. It looks like typical financial excess: energy traders in Calgary, Canada, more than 2,000 miles from Amaranth’s home office in Greenwich, Conn., blew the fund. They’d made tons of money in previous years. Amaranth started 2006 with $7.5 billion and has probably lost more than 80 percent of it. Its investors and key personnel are going to bail. It’s done.<\/p>\n
But rather than chew over Amaranth’s particulars, I’d like to show you the big picture: how hedge funds work and why the people running them can have different motivations than their investors do.<\/p>\n