The Times of London is reporting that fund-of-funds manager Chistopher Fawcett wrote a letter to clients calling the collapse of Amaranth easily foreseeable.
Okay. Color us cynical. But writing a letter to clients 10 months after you get out of a position and one month after the position collapses seems to, at the very least, leave the door wide open for accusations of post-hoc rationalizing. Which is to say, it's possible that this article reflects part of what went wrong at Amaranth--the mentality that says everyone's a genius when they are right and everyone's a fool when they are wrong.
Fauchier Partners, which inherited a $30 million position in Amaranth last summer when it took over a competitor, took one look at the hedge fund and demanded its clients’ money back.
In a letter to his investors yesterday, Christopher Fawcett, co-founder of Fauchier, said that his team had spotted no fewer than 11 red flags after visiting Amaranth. He wrote: “Following on-site meetings with [Amaranth] founder Nick Maounis and his team, we decided to redeem from the fund. Moreover, our concerns were sufficient to justify paying a redemption penalty for an early exit.”
In an implicit criticism of the many fund-of-hedge-funds investors that piled into Amaranth, Mr Fawcett said the problems at Amaranth were “anything but unforeseeable”.
But if we take off our cynical spectacles for a moment we can at least notice that Fauchier did get out of Amaranth in a hurry, so its possible that they did see something wrong there. Something that Goldman Sachs, Morgan Stanley, Deutsche Bank, Man Group, Credit Suisse and Union Bancaire Privee, among others, all missed.
Investor paid out extra penalties to quit Amaranth [Times]