We have now further corroboration from the Financial Times that Amaranth has actually lost 65 percent of its assets in September, not 50 percent.

That article is the second report I’ve seen that says Amaranth sent a letter to all its investors – including the county’s pension system – advising that the losses were more than they’ve said.

That would explain why the county pension CEO Brian White emphasized repeatedly today that his initial statement that the county had lost $45 million was a “soft” estimate and could very well change.

Let’s do the new “soft” estimate ourselves? The county’s initial investment in Amaranth was $175 million. By September, it had appreciated to at least $234 million. If the county lost 65 percent of that, the county has now $82 million left over to claim. That’s a loss from the initial investment of $93 million.

That’s a bit more brutal of a hit than White’s soft estimate of $45 million.

White denied during the meeting a speaker’s accusation that he and other pension officials had sought to “minimize” the costs of the Amaranth disaster. But if he had received this letter describing the losses as much worse than first disclosed, wouldn’t he have wanted to update his estimate?

  • The Financial Times also reported that Amaranth had lawyered up and was preparing for lawsuits.

Amaranth investors could file lawsuits claiming they were misled verbally or through documents about the amount of concentrated risk the fund was taking.

Multi-strategy hedge funds are supposed to avoid massive losses in any one asset class.

Prominent white-collar law firm Skadden, Arps on Thursday said it was representing Amaranth, indicating the fund was preparing for a legal battle.

Investors could also claim that Amaranth failed properly to supervise trader Brian Hunter who made the losing natural gas bets.

  • Rich Toscano, the guy who explains things, got back to us on our inquiry about what exactly it meant that Amaranth was selling it’s “positions.”

A bunch of people gave money to Amaranth, but Amaranth doesn’t just have that money sitting in a bank account. It invested that money in natural gas futures, stocks, bonds, and who knows what else. These are its “positions” (a position just being a given investment that they own – e.g. if I bought 100 shares of IBM, I’d now have a “position” in IBM.)

The problem is that they have to liquidate their positions to get back money to give to San Diego County and other pissy investors – and they’re having to sell so much (whether they take a loss or not) that it just makes a bad situation worse.

For instance, if they were leveraged 2 to 1 (essentially, they made a 50 percent down payment on the investment and borrowed the rest), then, if they want to give the county back $100 million, they have to sell $200 million worth of investments. Just makes the whole unwinding that much more brutal.

And that might explain why every time we look up, the losses at Amaranth, and therefore the county, get worse.

  • County Supervisor Dianne Jacob asked the pension fund’s investment advisor today if he considered the investments in hedge funds like Amaranth to be like “gambling, as in casino gambling.”

He said no.

Well, that’s reassuring.

SCOTT LEWIS

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