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I read the letter sent by Amaranth to its investors, and also was able to listen to the conference call. The letter discussed the transfer of its energy portfolio to a third party, and that it's leverage has been reduced to 1.3:1. It also stated that its Multi-Strategy fund lost approximately -65% in September, and approx. -55% ytd.

The conference call discussed how market events and liquidity caused the large losses in the fund. The Amaranth representative said that the market "provided no viable means of exiting positions". This is when the contacted 3rd parties to transfer their energy positions, or faced the prospect of not being able to meet margin calls. If the bids they received weren't' accepted, it could have resulted in a total loss for investors. Scary.

What bothered me about the call was how eerily reminiscent it was of LTCM. They blamed it on market events, illiquidity, and the fact that their VAR risk models predicted that the likelihood of such a scenario was remote. But as we all know, remote does not mean impossible. The fund lost $560 million in one day on Sept. 14th.

The most surprising statement I heard: Amaranth will be eliminating energy trading as a strategy within the fund.

They did not offer any details about the trader who put on these positions, the true size of these positions, whether he averaged down or doubled up, etc.

long risk mgt.

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