Check out the story from the U-T today on the Amaranth explosion and its effects on the San Diego county employee pension fund.

U-T reporter Leslie Wolf Branscomb interviewed Dave Myers, the chairman of the board that oversees the county pension fund and the group that signed off on the decision to invest in the hedge fund.

“I’m extremely concerned any time our investments are lost to what I perceive to be fraud,” said Myers, a lieutenant with the county Sheriff’s Department.

“When we hired Amaranth, it was promoted as a multi-strategy, well-diversified hedge fund. It was thoroughly vetted by our staff and our consultants.

“How could a hedge fund lose almost half of its value in just two weeks? To me, this stinks.”

Is he serious? A hedge fund is so risky precisely because you can’t “thoroughly vet” it. It conforms to its own rules. In fact, CNBC reported this morning that Amaranth was exempt from even the bare minimum of federal oversight because it certified that all of its investors were “sophisticated.”

Myers is trying to act like the victim in this. Let’s be perfectly clear: this is the risk you take on when you invest in unregulated hedge funds and this is exactly why the county should not have so much of its portfolio – if any part of it at all – invested in them. This is like blaming the casino because you lost a big blackjack hand.

And this is definitely gambling.

If you have a subscription to The Wall Street Journal, check out their take today on what happened to Amaranth.

It’s a great narrative of how Amaranth’s head trader, a guy named Brian Hunter, made a bundle last year by betting on prices of natural gas. He decided to double down on that bet:

By early September, as prices fell precipitously because of a storage glut, Mr. Hunter held bets that would pay off exponentially only if natural-gas prices rebounded, either on the prospect of a cold winter or a nasty hurricane that hit natural-gas facilities. But as evidence pointed to a meek hurricane season and mild winter, prices fell more.

Amaranth’s systems didn’t appear to measure correctly how much risk it faced and what steps would limit losses effectively. The risk models employed by hedge funds use historic data, but the natural-gas markets have been more volatile this year than any year since 2001, making models less useful. They also might not predict how much selling of one’s stakes to get out of a position can cause prices to fall.

Nice.

SCOTT LEWIS

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