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Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster Hardcover – May 21, 2013
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Hedge funds, once an obscure investment vehicle confined to the ultrarich with a penchant for risk, have ballooned to a $2 trillion industry in recent years, as ordinary pension and retirement money have been poured into these unregulated funds. One of these funds, Amaranth Advisors, managed $9 billion in assets until its collapse in September 2006 owing to oversize holdings in natural-gas futures executed by a brash young Canadian trader named Brian Hunter. Wall Street analyst Dreyfuss details how Hunter’s manipulation of the natural-gas market not only lost billions of dollars for Amaranth investors but also caused speculative price spikes that took a heavy toll on consumers and business owners. Her work shines light on the little-known sector of unregulated energy trading in the wake of Enron, where reckless traders continue to take enormous risks with investors’ money and wreak havoc in energy-commodities markets, which are essential to the lives and livelihoods of ordinary Americans. --David Siegfried
“Regulators, legislators and judges inclined to sympathize with the industry ought to rush out and buy a copy of Barbara Dreyfuss’s Hedge Hogs, a wonderfully instructive tale about Amaranth Advisors. . . . Dreyfuss, a Wall Street analyst turned investigative journalist, not only plowed through what turned out to be a treasure trove of official records and transcripts, but supplemented it with plenty of her own reporting. She manages to organize it all into a tight, riveting and understandable yarn.”—The Washington Post
“If you are an avid follower of Wall Street, you’ll read [Hedge Hogs] in one sitting. . . . Dreyfuss is able to strategically select the essential elements that make for an accurate and fast-paced read laced with illuminating Wall Street lore while sparing the lay reader useless financial jargon. This riveting book gives us much to think about.”—Wall Street on Parade
“Clearly and entertainingly told . . . a salutary example of how traders who believe they are super-smart might be nothing more than lucky, and how there is nothing so intoxicating as the ability to speculate with other people’s money.”—The Economist
“[Barbara T. Dreyfuss] does a great job of putting Amaranth’s out-of-control trader into historical context, explaining the blitz of deregulation that set the stage for someone like [Brian] Hunter to do maximum damage.”—Bloomberg
“A telling insider’s story on how hedge funds are playing high-stakes poker for massive personal profits and stealing the American Dream from average families . . . This is a case study that cries out for tougher crackdowns on the derivatives game.”—Hedrick Smith, author of Who Stole the American Dream?
“Brian Hunter, dubbed one of the top rogue traders of all time by The Wall Street Journal, is the only one on the list not to have gone to prison for his crimes. In Hedge Hogs, Barbara Dreyfuss reveals in forensic detail how Hunter carried out a speculative assault on the highly vulnerable U.S. energy market. Hedge Hogs is a great read for those interested in an introduction to the games often played by energy traders, as well as Wall Street veterans who think they know everything there is to know on this subject.”—Leah McGrath Goodman, author of The Asylum: Inside the Rise and Ruin of the Global Oil Market
“Hedge Hogs is not merely the definitive take on the largest hedge fund collapse in history—it is a window into how the financial system came unstuck. Barbara Dreyfuss gets all the details right. This is Enron II, the sequel in which a thirty-year-old farm-boy from Calgary makes $113 million one year and then destroys his firm—and yet he isn’t even the highest-paid or most intriguing character his age. Once you start reading this book, you will not be able to put it down.”—Frank Partnoy, author of F.I.A.S.C.O. and Infectious Greed
“Dreyfuss smartly deploys her inside knowledge. . . . [Her] lucid, perceptive tour of the high-wire culture of hedge funds highlights how vapid Wall Street’s pretense of market expertise and risk analysis really is.”—Publishers Weekly
“A well-crafted investigation.”—Kirkus Reviews
“[Dreyfuss’s] work shines light on the little-known sector of unregulated energy trading in the wake of Enron.”—Booklist
Named One of the Top 10 Business & Economics Books of the Season by Publishers Weekly
Top customer reviews
Barbara Dreyfuss has written a very interesting account of how Amaranth evolved and it came to pass that they allowed a single trader to take massive positions in the natural gas market.
Perhaps it goes without saying that this is a tale of massive hubris. At one point Amaranth's positions were so large that they moved the market. But since the positions comprised a significant fraction of the market there was no way out. Only events like weather could have saved the bet and by its nature weather is an unpredictable phenomena.
For those interested in finance and hedge fund excess this is definitely a good read.
Ms. Dreyfuss chronicles the demise of Amaranth Advisers, a multi-strategy hedge fund that allowed its natural gas trader to build a series of investment positions that wiped out a majority of its investors’ capital. The book contains some dramatic scenes, especially when Brian Hunter, Amaranth’s star energy trader, desperately tries to trade out of his untenable position. However, the real value of this book comes in the details, and that is why Hedge Hogs is so important. Ms. Dreyfuss shows how Mr. Hunter slowly amassed the means to destroy Amaranth, despite all the risk managers and risk management systems deployed by the firm.
There are times when you have to read this book slowly in order to grasp how Mr. Hunter and his competitors at other hedge funds are placing their bets on natural gas prices. However, it is important to understand what is going on, because this small group of traders made speculative bets that were much bigger than the physical market for natural gas. In other words, we get to see what happens when too much institutional capital swamps just one tiny niche of the investment marketplace. We also find out that these speculative excesses have consequences for the real economy. Ms. Dreyfuss details how Mr. Hunter’s trades distorted the natural gas market and made it nearly impossible for utilities, manufacturers, and other businesses to hedge their energy costs.
I am not recommending this book because it will help investors avoid making mistakes. Rather, they need to read this book to help them prepare for dealing with the inevitable problems that will befall their hedge fund investments. As more and more money flows into these types of speculative investments, there will be more implosions. What happened to Amaranth isn’t the by-product of some cataclysmic event like the credit bubble. Instead, Ms. Dreyfus reveals that an ordinary, well-diversified investment can turn toxic, when too much money meets someone who is willing to gamble with it. For all of those investors who think that their investment checklists, scrupulous due diligence, and risk models will steer them clear of the next Amaranth, read the book and think again. There’s probably another Amaranth already in your portfolio; you just don’t know it.