According to this Reuters news story, Amaranth Advisors LLC has transferred the balance of its energy portfolio to one of its peers, the approximately $12 billion hedge fund complex known as Citadel Investments. The real interesting question is at what net price (loss) this liquidation was completed at. One suspects that Citadel took on the positions at some discount to spot prices, given that many market participants were/will be trading against what is known about the Amaranth portfolio exposures. Without knowing the specifics of the positions that were transferred, it would appear that a discount of between 2.5% and 20% would be appropriate for taking on such a public and notorious position. This will not help the investors who put their money with Amaranth Advisors, but it will satisfy at least one of rule of risk management: when confronted with a run-away position, liquidate and prepare to play the trading game another day after lessons have been learned. A key question will be whether Amaranth will be around to play in the future. The jury is still out on how such a sophisticated fund could lose close to half of its value in just two short weeks. Would you give your money to Amaranth for 2% and 20% fees going forward?

We at Toomre Capital Markets LLC have been stupefied since the recent news emerged that Amaranth Advisors lost more than $4 BILLION in little more than two weeks’ time due to the trading of its natural gas “superstar,” Mr. Brian Hunter. While there are conflicting reports of just how steep a loss Amaranth has incurred, it appears that this hedge fund manager’s assets declined from approximately $9.2 billion at the end of August 2006 to something close to $4.6 billion as of Monday, September 18th 2006. Doing some of the fancy quantitative mathematics that hedge funds and Wall Street types are well-known to dazzle other more mortal peons with, TCM calculates that the Amaranth loss was some $4.6 billion, give or takes a few nickels. Let us repeat this amazing number: $4+ billion in trading losses in little more than two weeks!!!! To put this in perspective, Long-Term Capital Management (“LTCM”) “only” lost approximately $4 billion back in the summer of 1998 during the Asian currency/debt crisis.

The post Being Brian Hunter on DealBreaker.com provides more information on this trading superstar, Mr. Brian Hunter. The Reuters story Man at eye of Amaranth storm avoided the limelight has further details on Mr. Hunter’s supposed skill with energy derivatives.