Who Invested In Amaranth?

Abstract

Throughout the second half of the month of September, investors and other participants in the hedge fund industry watched as Amaranth Advisors’ Multi-Strategy Funds suffered extraordinary losses of approximately 65% of capital on adverse bets in natural gas and other assets. This article identifies 80 fund of funds that were invested in Amaranth in September, 2006, utilizing direct or indirect, statistical methods. The results show that due to their exposures to Amaranth, fund of funds lost an average of 19.2M dollars and dissipated an estimated median of 2.1 years and an average of 5.7 years of their total alpha production. Investors in fund of funds should consider this a lesson in the importance of evaluating the overall investment processes of such fund of funds, and accordingly evaluate whether the value of all services provided by candidate fund of funds match or exceeds the value of expected fees.

TOPICS: Real assets/alternative investments/private equity, commodities, risk management