The Morning Report
Get the news and information you need to take on the day.
OK, rapid fire, here’s what I’ve collected so far:
- The county’s pension system has applied to terminate its arrangement with Amaranth Advisors, the hedge fund that just exploded.
- That’s a big deal because now county officials join a long list of investors hoping to get money out and there’s a chance they might not be able to for several weeks. It’s unclear how much they’ll succeed in redeeming.
- The CEO of the system, Brian White, said he is estimating the retirement fund lost $45 million last week.
- The county already had plans to sell off some of what it thought were earnings from the Amaranth fund – about $63 million. It was going to use the revenues to invest in yet another hedge fund: Highbridge Capital Management. They were going to discuss the plan Thursday at the monthly investment meeting. (They are still planning on investing in this hedge fund, but with money from an undetermined source.)
- The retirement system has invested in 10 different hedge funds. CEO White said one of them actually came out “at the other end” of the natural gas gamble that killed Amaranth. He said they would be posting gains from that.
- Finally, what happened? We still don’t know.
“Of course we’re concerned with the results and the issues with regard to Amaranth,” White said.
He said when the county’s pension had decided to invest in Amaranth, county officials had been reassured that there were checks in place to make sure that the hedge fund’s bets on the natural gas market were backed up.
Again, White: “We had numerous in-depth discussions with them in regard to risk control and one of the things we talked to them about was that they had ‘put’ options to hedge the downside risks. At this point, we’re not sure what happened in regard to their downside risk strategies but we intend to find out.”
I also got a hold of Doug Rose, a trustee on the board that oversees the county pension system.
Rose said he would definitely have some questions at the Thursday meeting about what happened with the county’s investment in Amaranth.
“I can’t give you a statement of what we should do until I hear an explanation about what happened,” Rose said.
As for the inherent risk involved with investing in hedge funds, Rose said the board has to be able to trust its employees and advisors.
“There’s always been a hesitancy regarding hedge funds because they are unregulated. We rely on our CIO and consultants and their reviews and recommendations,” Rose said. “We’ll have to see what they say about what happened and why it happened.”
Rose said it was a good sign that the county was already thinking of getting out of part of its investment in Amaranth.
“The fact that we were already planning to rebalance and take $63 million out of Amaranth was recognition of the fact we wanted to diversify,” Rose said.
Lots more to come.