U.S. hedge fund faces billions in losses on natural gas bet

Amaranth Advisors, a big U.S. hedge fund, has told its investors to brace for huge losses as a result of its costly bet that natural gas prices—now at a two-year low— would rise.

Some reports said the fund's losses could amount to $4 billion US.

"We anticipate our year-to-date losses might be in excess of 35 per cent as we near completion of the disposition of our natural gas exposure,"the hedge fund said in a letter to investors obtained by several media organizations.

Amaranth traders apparently placed hugely leveraged bets that natural gas prices would rise.

Instead, gas prices fell15 per cent in the last couple of weeks andhit two-year lows amid abundant supplies and the lack of damaging hurricanes.

Amaranth said it had met every margin call and was unwinding its natural gas positions.

"We are in discussions with our prime brokers and other counterparties and are working to protect our investors while meeting the obligations of our creditors," the company said.

A Canadian unit of Amaranth, Amaranth Canadian Trust, blamed news of the trading losses for a drop in the unit value of Cinram International Income Fund.

Amaranth Canadian Trust (ACT)owns 15 per cent of Cinram, a maker of DVDs and CDs.

Amaranth saidin a public letter to Cinramthat the heavy trading and losses in Cinram units on Monday was due to uncertainty about Amaranth's plans for its stake in Cinram.

"Earlier this morning the Amaranth investment fund group announced significant trading losses in its natural gas trading business," the letter said. "Shortly thereafter, the trust units of Cinram came under intense selling pressure.

"Given the absence of any fundamental news about Cinram, we believe this selling was due to market participants speculating about ACT's intentions with respect to its Cinram holdings," Amaranth said.

Amaranth said Cinram's units are undervalued and called for Cinram to be sold or taken private.

Cinram units closed at $22 Monday, down 83 cents.