Wall Street Journal reporter Ann Davis has a long profile in today’s paper on Brian Hunter, the energy trader whose energy trades brought Amaranth’s assets from $9 billion to around half that. It’s too long to properly excerpt, so go read the whole thing. The interviews with Brian (we’ve been thinking about him so much lately we’ve decided we’re on a first name basis) seem to have taken place months before his recent troubles but it is still fascinating to read.
The juiciest bits details Brian’s fiery relationship with his former employers, Deutsche Bank.
Mr. Hunter personally generated $17 million in profit in 2001 and $52 million in 2002, according to a complaint he later brought in state court in New York. By 2002, he pulled down more than $1.6 million in salary and bonus and began supervising the gas desk in 2003.
In December 2003, just as his group was close to ending the year up $76 million, he claimed in the suit, things went awry. In a single week, they had losses of $51.2 million, he said in the suit. He blamed "an unprecedented and unforeseeable run-up in gas prices" along with "well-documented and widely known problems with" Deutsche Bank's electronic-trade-monitoring and risk-management software, which he said hurt traders' ability to extricate themselves from bad trades. Deutsche Bank denied its systems were to blame.
Mr. Hunter argued that even though the desk as a whole posted a loss, he personally made trades that netted the bank $40 million that year. He and his natural-gas colleagues got no bonus. By February 2004, relations had soured to the point that supervisors locked him out of the trading system and made him an analyst, moving him off the desk. Mr. Hunter left in April and subsequently sued over the withheld bonus and claimed Deutsche Bank defamed him. It denied the allegations. The suit is pending.
There are also hints that the seeds of Amaranth’s current troubles may have been planted when the much more conservative energy trader Harry Arora left the fund to start his own energy trading outfit last spring. Brian became the head of the energy trading desk at Amaranth, and moved operations up to Calgary.
Mr. Maounis, the head of Amaranth, took a chance on Mr. Hunter. Amaranth was one of the first hedge funds to build an energy desk soon after the demise of Enron, under the leadership of former Enron energy trader Harry Arora. Messrs. Arora and Maounis hired Mr. Hunter and initially kept him on a tight leash. Mr. Maounis says the firm knew of Mr. Hunter's history at Deutsche Bank but did extensive checks and found "nothing that made us uncomfortable."
Mr. Arora was relatively conservative and sought to make diversified commodities investments. He brought Mr. Hunter along and the energy group posted steady annual returns of 20% to 40%.
Mr. Hunter wanted to make bigger bets in his main market, gas. He had an ability to keep calm with huge bets on the line and markets were going berserk. In July 2005, for instance, he was in Calgary at Stampede, a rodeo festival, when the gas market began moving erratically. Mr. Sabad, his former TransCanada colleague, says Mr. Hunter got on the phone a few times but didn't panic or trade from his hotel room. "He asks himself, 'Do I still like my position?' If he does, he adds more," Mr. Sabad says.
Around that time, Amaranth agreed Messrs. Hunter and Arora could separate their trading "books," each controlling his own trades. Then late last year, the double-whammy of Hurricanes Katrina and Rita made Mr. Hunter a hero at Amaranth and a minor legend on Wall Street, as he made $1 billion for Amaranth.
You have to wonder whether the fund would have placed as risky bets as it did if Arora was still there.
How Giant Bets on Natural Gas Sank Brash Hedge-Fund Trader [Wall Street Journal; subscription required]
[Free Version of the Same Article]