Book Explores Amaranth Implosion

May 23 2013 | 10:38am ET

Amaranth Advisors collapsed more than six-and-a-half years ago. A new book attempts to explain why.

In Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster, author Barbara Dreyfuss lays the blame squarely on the culture of star traders on Wall Street. According to Dreyfuss, a former analyst at Prudential Securities, there were ample opportunities to stop Brian Hunter, the natural-gas trader whose massive bets destroyed Amaranth.

For one, Amaranth hired Hunter after a stint at Deutsche Bank punctuated by the trader's demotion. Hunter's boss would later say that Hunter could not be trusted to "do the right thing for the bank." After just a year at Amaranth, SAC Capital Advisors came calling, and to hold onto its star, Amaranth allowed him to return to Calgary from its Connecticut office and freed him from his boss, who quit, warning that Hunter "could blow up the entire firm." And when Hunter began to do just that, he did so ignoring requests that he cut back on his positions, but wasn't disciplined for his failure to do so.

But oversight wasn't the only—or even the primary—problem, according to Dreyfuss. Instead, she seeks to show that deregulation set the stage for traders like Hunter, who were encouraged and fueled by the juvenile and masculine culture of the business. She cites Hunter's frequent battles with Centaurus Capital founder John Arnold, one of the most successful futures traders of all times, among others.

"If you want to succeed and make money, you want to destroy someone else," a trader explains to Dreyfuss. "That's just how it works. If I want to be successful in this industry, I'm going to want to destroy five guys."

Dreyfus also shows how much Hunter's own distorted perceptions of his prowess contributed to Amaranth's fall. Having already lost more than $1.1 billion, on his way to losing $5 billion more, Hunter complained that the markets—rather than he himself—"were getting out of control." He also lamented the "fricken deviant market" as he racked up huge losses.


In Depth

Kettera Q&A: The Advantages of Alternative Investment Platforms

Oct 28 2016 | 5:52pm ET

The past several years have seen a distinct push towards easier and cheaper access...

Lifestyle

Midtown's Plaza District Fades As Manhattan Office Landscape Shifts

Nov 22 2016 | 6:32pm ET

Lower leasing costs, more efficient office space and the hope of projecting an image...

Guest Contributor

Nowhere to Hide: Why the Future of Asset Management Depends on Innovation

Nov 15 2016 | 6:55pm ET

Information technology has reshaped the asset management industry’s periphery,...

 

From the current issue of

Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR