A bid by SAC Capital's Stevie Cohen to hire away energy trader Brian Hunter may have been "the first domino" in the series of decisions that eventually led to the collapse of Amaranth, the Greenwich, Connecticut-based hedge fund brought down in September by bad bets on energy futures, according to a report from Bloomberg this morning.
Here's the lede:
Nicholas Maounis, founder of the Amaranth Advisors LLC hedge fund, made a decision in April 2005 that eventually cost him his firm.
His promising natural-gas trader, Brian Hunter, had been offered a $1 million bonus to join Steven Cohen's SAC Capital Advisors LLC. Maounis, who had built his Greenwich, Connecticut- based fund to $6 billion in assets, didn't want Hunter to go.
Convertible bond and equity prices were falling and oil and natural gas prices were increasing, making Hunter's expertise more valuable. So Maounis named Hunter co-head of the energy desk and gave him control of his own trades.
But you really should read the whole thing. There are lots of details about Amaranth's internal controls (or lack thereof) and investment diversification (or lack thereof).
The dog that doesn't bark in this article, however, is named Harry Arora. Harry was an Enron Zombie—an energy futures trader at the now infamously collapsed Houston company who had found new at Amaranth. He ran the hedge fund's energy trading desk, leaving right around the time Brian Hunter got his big promotion. What's unclear is whether Harry was forced out to make room for Brian, whether he left rather than share leadership of the desk with Brian or whether he was leaving anyway. He went on to start his own energy fund, Arcim Advisors.
[Editors note: The picture above the left represents Brian Hunter. And some other guy holding him up for the camera.]
Amaranth's $6.6 Billion Slide Began With Trader's Bid to Quit [Bloomberg]