Nick Maounis

Hunter, Amaranth Dream Team Still Finding Ways To Lose

brianhuntermaybe.jpgWe’ve been sitting on this story because we didn’t want to rain on the comeback parade Brian Hunter’s been enjoying at the Peak Ridge Commodity Volatility & Fallen Heroes Shot at Redemption Fund, and Nick Maounis had quite nearly completed the assembly of his pussy posse, so there was that, but we can’t in good faith wait any longer: on Wednesday, a federal judge denied a motion by Amaranth Associates and its erstwhile golden boy B. Hunter, to dismiss charges brought by the Commodity Futures Trading Commission which said something about AA and BH attempting to manipulate the natural gas markets, and then lying to the NYMEX to cover up the botched mission. At the heart of the matter, the CFTC claims, are a series of instant messages between Hunter, Matthew Donohoe, other Amaranth employees and a trader at another firm, that supposedly “reveal [an] intent to manipulate prices.” You can find them here.
Personally, all I see are a bunch of “hahas,” instances of experimental grammar and, most offensively, “LOLs.” Are these transgressions emblematic of one’s trading acumen/criminality? I’m not sure. If they are, however, these guys are going down.
Hunter’s attorney, Michael Kim of Kobre & Kim LLP, told Reuters Friday, “When the case is fully examined, we are confident that Brian Hunter will be vindicated.” Kim (fictitiously) added, “Or, he will hang himself in his cell. Could go either way.”
Judge Denies Amaranth, Hunter Motion to Dismiss [Reuters]

Nick Maounis’s New Hire

Nick Maounis’s old hedge fund might’ve gone under because he hired a Canadian (who failed to effectively manipulate the natural gas market) but I think this time he’s got it figured out. Maounis has reportedly scored Peter Chung to run a credit book for his new venture, Connecticut-based Verition Fund Management. Chung comes from Highland Capital, and previous to that, the Carlyle Group, where he was working when he sent out that colorful email to his friends referring to himself as King Chung, and describing the apartment he was staying in while in Seoul for business thusly:

[It’s a] brand new 2000 sq. foot 3 bedroom apt. with a 200 sq. foot terrace running the entire length of my apartment with a view overlooking Korea’s main river and nightline. Why do I need 3 bedrooms? Good question, the main bedroom is for my queen size bed, where CHUNG is going to fuck every hot chick in Korea over the next 2 years (5 down, 1,000,000,000 left to go) the second bedroom is for my harem of chickies, and the third bedroom is for all of you fuckers when you come out to visit my ass in Korea.

We hear that while Chung is said to be a brilliant businessman who’s had considerable success since being dismissed from Carlyle, it was his proven track record with the ladies that sealed the deal for Maounis, who’s had some difficulties in that department since AA went under.

I know I was a stud in NYC but I pretty much get about, on average, 5-9 phone numbers a night and at least 3 hot chicks that say they want to go home with me every night I go out…what can I say…live [sic] is good…CHUNG is KING.

Obviously we’re thrilled for them both, though our excitement was slightly dampened when we received an anonymous tip that Brian Hunter has been weeping audibly in his office at Peak Ridge Capital since hearing the news. Apparently Fish Boy had come to grips with the fact that Maounis wasn’t going to offer him another job, but he’d been holding on to the pipe dream that he’d at least be brought back into the fold as a wingman.
Amaranth founder teams up with “King Chung” for new firm [American Madness]
Chung King [Snopes]

  • 11 Jan 2007 at 3:09 PM
  • Amaranth

Why We May Not Want To Run Nick Maounis Out Of Town On A Rail

Yesterday we noted that calls for Nick Maounis to be banned—or at least shunned—from the capital markets after the collapse of his hedge fund, Amaranth, might be a little overwrought. The losses suffered by Amaranth were large, and many investors lost money, but more rational investors will want to ask whether this indicated some fundamental flaw with the way Maounis was running Amaranth’s investments rather than whether some abstract concept of justice will be violated if Maounis succeeds in launching a new hedge fund.
As a friend of DealBreaker’s said yesterday, “Are we in this to make money or dole out punishments? Cause if it’s the latter, there’s a long, long line of deserving parties and we’d better get started early.”
What’s more, it’s important to keep in mind that while Amaranth’s losses were large, so was Amaranth. The whole hedge fund industry is large. A more relevant measure of Amaranth’s losses is not the absolute dollars lost but the percentage of funds under management lost. According to someone familiar with the situation at Amaranth, its funds were down somewhere around 55 to 65 per cent when the decision was made to wind down. This was in a year when many funds made sub-par gains. And by shutting down operations when it did, Amaranth missed out on the fourth quarter in which many funds made up for earlier losses or paltry gains.
Historically, Amaranth’s funds under management relative losses are not enitrely unprecedented. Everyone remembers the Long-Term Capital Management debacle. But what about D.E. Shaw? Losses there in 1998 are said by some to have been, percentage wise, close to those Amaranth suffered. What’s more, D.E. Shaw’s losses wreaked havoc with one of it’s biggest investors, Bank of America. The bank was forced to disclose $372 million in trading losses, and saw its stock price plummet. (Amaranth’s banking partners seem to have been far less scorched by its losses.)Today, D.E. Shaw is one of the most admired hedge funds in the industry.
But shouldn’t there be some sort of probationary period for Maounis? Some time where he’s benched, forced to sit on the sidelines? Before answer that, consider that this might result in real opportunity costs. Maounis presumably has quantitative investment models that, despite the natural gas blow-up, are still otherwise functional. But these things have sell-by dates, and won’t last forever. It seems odd that investors be forced to surrender the possible gains from investing with Maounis because a quick return offends our sense of propriety.
As we mentioned yesterday, the best test for whether it is too soon for Maounis to return will be the market. Investors are the referees here, and they are the ones who will decide whether Maounis deserves a yellow card for Amaranth’s losses.

  • 10 Jan 2007 at 10:33 AM
  • Amaranth

How To Think About The Return of Nick Maounis

Reacting to the news that Amaranth founder Nick Maounis may be starting a new hedge fund after his last venture lost billions, Bloomberg’s Matthew Lynn asks “So what exactly does it take to make a man unemployable in the hedge-fund industry?”
There was a time when financial managers who lost everything were expected to defenestrate themselves. Or at least go away for a while. Maounis quick return has Lynn worried that the mechanism on reputational damage has somehow broken down.

Hedge funds have an unbalanced risk/reward ratio. Let’s say you raise $1 billion from investors, and you stand to earn 20 percent of any gains you make on that money. The natural temptation is to take big risky bets. If they pay off, you will collect a fortune. If they don’t, well it isn’t your money going down the tubes.
It is rather like walking into a casino with a stack of someone else’s chips. Most of us would go straight to the roulette wheel, pick a number, put the chips down and try to win.
In effect, the investors take most of the risk while the manager takes a lot of the gains.
Only one real safeguard is built into the system: Get it wrong, and your reputation goes out the window. Your investors abandon you. Your job disappears. Before long, you will have to start remembering the phrase “Would you like fries with that?” if you ever want to work again.
That, at least, builds in some incentive to think carefully before placing any wagers on the direction of the markets.
Maounis’s possible return makes one wonder if that safeguard has worked this time.

But there is another possibility. That is, perhaps investors are just more rational now. Nick Maounis has a long track-record as a successful fund manager and investors may simply be unwilling to give up the gains they expect he can bring in order to punish him for the collapse of Amaranth. We’re still not sure Maounis will succeed in getting his new fund off the ground. But assuming he does that seems a more reliable test of whether Maounis belongs back in the markets than whatever notions of justice journalists might have in their head.
Amaranth’s Maounis Should Stay Out of the Markets [Bloomberg]